In morning trade the HUB24 Ltd (ASX: HUB) share price has crashed lower following the release of the investment platform company's half year results.
At the time of writing the HUB24 share price is down 14% to $12.61, but was as much as 19% lower at one stage.
Here's how HUB24 performed in the first half compared to the prior corresponding period:
- Net flows of $2.1 billion and funds under administration (FUA) of $10 billion.
- Revenue up 16% to $47.1 million.
- Gross profit up 34% to $21.5 million.
- Underlying EBITDA increased 32% to $6.5 million.
- Underlying net profit after tax increased 46% to $3.1 million.
- Inaugural interim dividend declared at 2 cents per share.
- FUA increased to $11 billion as of February 22.
- Guidance: FUA target range of $19 billion to $23 billion by June 2021.
What were the drivers of the strong result?
The company's strong profit growth was driven by the large increase in net flows over the period. This lifted its FUA to $10 billion and was the result of the execution of its largest FUA transition, two large national broker wins, the launch of six new branded licensee solutions, and 94 new managed portfolios.
HUB24 managing director, Andrew Alcock, was pleased with HUB24's strong first half and appears optimistic on the second half.
He said: "We have maintained our position as the fastest growing platform provider in the market. Our constant innovation and ongoing investment to capture market share is resulting in momentum in the second half with strong net inflows and continued conversion of HUB24's growing opportunity pipeline."
Looking ahead, management believes it is well-positioned following the release of the final recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
HUB24 is expected to benefit from the removal of grandfathered commissions, the potential opening up of institutional Approved Product Lists, and the need for ongoing annual client engagement from advisors.
Management believes these will "encourage the adoption of modern platform and investment solutions and the transfer of FUA from incumbent institutional platforms to platforms such as HUB24."
As such, it has set itself a FUA target range of $19 billion to $23 billion by June 2021. The middle of this range is more than double the FUA it finished the first half with and is likely to underpin strong earnings growth if it achieves it.
Why are its shares crashing lower?
Although this was undoubtedly a strong result, the market had been expecting even stronger.
According to a note out of Goldman Sachs, its analysts had expected revenue of $47.9 million and underlying EBITDA of $8.4 million. This means HUB24 missed by 2% and 23%, respectively. Higher than expected corporate overhead costs and losses in the licensee and IT services segments were largely to blame.
Should you buy the dip?
There certainly are a lot of quality options for investors to choose from in the financial platform industry. These include the likes of Bravura Solutions Ltd (ASX: BVS), Netwealth Group Ltd (ASX: NWL), and Praemium Ltd (ASX: PPS).
Based on the quality of its product, its positive long-term growth outlook, and today's pullback, I would put HUB24 near the top of the list just behind Bravura Solutions.
