Below I names three businesses in the fintech space that have room to grow profits in the years ahead.
Netwealth Group Ltd (ASX: NWL) listed on Monday last week, joining a growing number of public companies that provide an investment management platform for individual clients and businesses.
One key reason for the rising popularity of these products has been the increasing number of Australians that wish to control their finances through Self-Managed Superannuation Funds (SMSFs).
According to the latest June quarterly statistics from the Australian Taxation Office, there were almost 600,000 SMSF accounts with an estimated total value of just under $700 billion.
Platforms like Netwealth are also used to assist individuals with investing outside of an SMSF and by financial services firms to support client needs. I believe this is a growth industry with room for the leading platforms to consolidate market share.
In addition to Netwealth, I’ve highlighted below two other ASX-listed companies within this sector that I believe investors should be aware of.
Netwealth may have only just listed on the ASX but the company has been in existence since 1999. Netwealth boasts funds under management and administration of $15 billion and has enjoyed a positive start to life as a public company, finishing up 10% after its first week of trading.
Netwealth’s platform revenues grew by a compound annual growth rate of 22% between FY2015 and FY2017, and the company expects these revenues to grow by 32% in FY2018. Netwealth is profitable and has forecast net profit after tax to increase an impressive 62% this financial year, driven by continued strong growth of funds under management and administration.
Hub24 Ltd (ASX: HUB) was established in 2007, experiencing very strong share price increases since 2012 and now has a market cap of $570 million. In a market update on 20 November, Hub24 announced it had reached $6.6 billion in funds under administration after adding $740 million of net inflows during the first four months of FY2018.
Hub24 was profitable in FY2017 and had a strong balance sheet with a healthy cash balance and no bank debt as of 30 June 2017.
The company generated positive operating cash flows in both FY2016 and FY2017; an indicator of maturing and sustainable business practices. Currently trading at around 30x FY2017 earnings, I believe Hub24 is reasonably priced given company expectations of doubling funds under management within the next three years.
Hub 24 shares have already gone from just 35 cents in 2013 to $9.50 today.
Class Ltd (ASX: CL1) provides the leading cloud-based administration software for SMSFs, having cornered 25% of the SMSF market. The company has been developing cloud-based wealth accounting solutions since 2009 and recently listed on the ASX in December 2015.
Class shares have declined 20% in value over the last year, even as the company has continued to grow its account base and increase market share. Part of the reason for the recent share price decline is the lofty valuation the market places on Class, currently trading at around 36x FY2017 earnings.
Despite the sell-off, Class’ financial statements for FY2017 show the company is generating a substantial amount of cash and is of a sound financial position with little debt.
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Motley Fool contributor Ian Crane does not own shares in any companies mentioned. The Motley Fool Australia owns shares in Class Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.