Hub24 Ltd shares hit an all-time high following quarterly update

Hub24 Ltd (ASX: HUB) shares have jumped higher in early morning trade, briefly hitting an all-time high of $11.90 following the company’s quarterly update released today.

Hub24 develops an investment and superannuation portfolio administration platform for individuals, corporations and self-managed super funds, and today announced that funds under management (FUA) had reached $7 billion. The latest milestone marks a 27% increase in FUA since 30 June 2017 and is a continuation of the company’s impressive performance since 2012, when FUA was just $100 million.

Included in the business update was an announcement that Hub24 has signed fourteen new licensees to distribution agreements, with the potential to significantly boost FUA growth and adviser base.

Hub24 is one of a growing number of investment and superannuation management platforms listed on the ASX, following the trend for clients to shun institutional wealth management offerings. Hub24 is backing its ability to attract new business, expecting FUA to top $12 billion in the next three years.

I’m normally wary of growth stocks in hot industries, however Hub24 may be an exception. The company recorded its first ever full year profit for the period ending 30 June 2017, as revenue growth more than doubled that of expenses.

Such scalable business models are highly attractive, as the firm’s earnings grows at a much faster rate than required capital expenditure. This is why Hub24’s FUA is seen as a key driver of earnings and therefore, share price performance.

As well as turning a profit in FY2017, Hub24 generated positive operating cash flow and the balance sheet was in good shape. As of 30 June 2017, the company looked strong in terms of liquidity and had no interest-bearing debt.

Hub24 may seem expensive as it currently trades on a trailing price to earnings ratio of 36x, but should the company’s strong FUA growth continue over the next six months, I expect FY2018 earnings growth will justify the relatively high market multiple.

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