The HUB24 Ltd (ASX: HUB) share price has had a strong start to the week after the release of its full-year results.
At the time of writing the fintech company's shares are up almost 7% to $12.79.
Here is how HUB24 fared in FY 2018 compared to a year earlier:
- Funds under administration (FUA) up 51% to $8.3 billion.
- Revenue increased 36% to $84 million.
- Underlying EBITDA of $11.4 million, up 123%.
- Underlying net profit after tax jumped 129% to $5.4 million.
- Operating cashflows increased 201% to $12.2 million.
- Inaugural dividend of 3.5 cents per share.
- Earnings per share of 11.9 cents.
- Outlook: FUA up to $8.7 billion year-to-date. Revised FUA target range of $19bn – $23bn by June 2021.
The key driver on HUB24's strong result was its Platform segment. Segment revenue grew 51% year-on-year to $39.7 million, meaning it now accounts for over 47% of its total revenue.
Pleasingly, the segment is starting to benefit from its scale. Its gross profit margin widened from 62% to 72% during the year, ultimately leading to profit before tax increasing 148% to $10.9 million.
There was $8.3 billion of FUA on its platform at the end of the year, up from $5.5 billion at the end of FY 2017. The solid growth has continued in FY 2019 with FUA reaching $8.7 billion early in FY 2019. Management aims for this to more than double to the range of $19 billion to $23 billion by June 2021.
The company's next biggest contributor to revenue is its Licensee segment. It grew revenue by 16% to $35.8 million in FY 2018. However, its profitability remains challenged and the segment posted just $200k in profit before tax, down from $300k a year earlier.
It was a similar story for its IT Services segment in FY 2018. The segment delivered an impressive 81% increase in revenue to $8.5 million, but a 94% increase in direct costs meant the segment posted a $300k loss before tax.
Should you invest?
I think HUB24 is an outstanding company with incredibly strong growth prospects. The entire market opportunity for its platform is expected to grow from $809 billion today to $1.55 trillion by FY 2026.
But the company isn't the only vying for these funds. The likes of Praemium Ltd (ASX: PPS), Onevue Holdings Ltd (ASX: OVH), and Westpac Banking Corp (ASX: WBC) are all active in the space.
And it is the latter that has a lot of investors concerned. Westpac's BT Financial Group recently slashed the prices of its platform significantly leading to concerns that increased competition would weigh heavily on margins moving forward.
This does make HUB24 a reasonably high-risk place to invest right now in my opinion, especially given how its shares are trading at over 107x earnings. I would class it as a hold until I've seen its first-half results and the impact competition has (or hasn't) had on its margins.
