The HUB24 Ltd (ASX: HUB) share price will be one to watch on Tuesday after the fintech company released a trading update yesterday evening.
Expectations certainly are high after HUB24's shares more than doubled in value over the last 12 months. Has the company delivered on expectations with this trading update? I think it has.
According to the release, HUB24's platform segment has continued to perform well and management expects it to deliver an underlying EBITDA of $11.8 million in FY 2018.
In FY 2017 the platform segment, the company's largest segment by some distance, delivered underlying EBITDA of $5.1 million. Which means that this year the segment is expected to grow earnings by a massive 131%.
In addition to this, the company advised that funds under administration (FUA) have remained strong during the fourth quarter. FUA currently stands at $8.3 billion and is likely to be given a boost in the coming months from its Agility Applications' joint development initiative, ConnectHUB, and its recently announced deal with Fitzpatricks Private Wealth.
One slight disappointment is that its IT Services segment is expected to report a break‐even underlying EBITDA result in FY 2018, down from a small EBITDA profit in FY 2017. But this segment is not material in my opinion, so I think investors should focus on the platform business.
The company didn't provide guidance for net profit after tax in this update. But if it has grown earnings at the same rate it grew EBITDA, then net profit after tax will come in at approximately $5.1 million.
Should you invest?
With a market capitalisation of approximately $810 million, I estimate that this means its shares are changing hands at a lofty 159x full-year earnings.
While this is clearly expensive, it is worth noting that many analysts expect this growth to continue and are tipping HUB24 to become significantly more profitable as it scales.
Credit Suisse, for example, expects HUB24 to deliver earnings per share of 20 cents in FY 2019. If this proves accurate, its shares are trading at a more respectable 65x estimated FY 2019 earnings.
Overall, I think HUB24 is a quality fintech investment option alongside the likes of Bravura Solutions Ltd (ASX: BVS) and Praemium Ltd (ASX: PPS). Though it might be prudent to wait for the market to digest this new data before making a move.
