Why the Hub24 (ASX:HUB) share price could go higher

The Hub24 Ltd (ASX: HUB) share price has almost doubled this year. But this broker thinks it could go higher. Here's the lowdown…

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Hub24 Ltd (ASX: HUB) is one of few ASX shares to not only break above its pre-COVID highs, but almost double in year-to-date returns. The investment and superannuation portfolio administrator has experienced significant growth in its platform revenue and funds under administration (FUA) over the past five years.

But, despite the Hub24 share price currently sitting at over $20, according to one broker, the company still has a significant market share opportunity at hand. Here's the Hub24 growth story so far and why this broker thinks the company still has a solid runway ahead of it. 

Hub24 highlights 

Hub24's investment and superannuation platform offers a comprehensive range of investment options, with enhanced transaction and reporting solutions, for all types of investors, individuals, companies, trusts, associations or self-managed super funds. 

The platform has continued to scale with a 5-year compound annual growth rate (CAGR) for FUA of 59% and a 5-year CAGR for platform revenue of 55%. More recently, in FY20, the company achieved a 37% increase in platform revenue to $74.3 million and a 34% increase in FUA to $17.2 billion whilst underlying net profit after tax (NPAT) soared 49% to $10.1 million. 

The company made a series of compelling acquisitions in FY20 to strengthen its position as a leading platform provider. Three companies including Xplore Wealth Ltd (ASX: XPL), PARS and an investment of up to 40% of Easton Investments Ltd (ASX: EAS) were added under the Hub24 brand for a total consideration of $93 million. These acquisitions are expected to result in approximately 13% earnings per share (EPS) accretion in FY22 and expected synergies of $10 million per annum by FY24. 

Despite the company's record growth, acquisitions and achievements to date, according to Citi, the market share opportunity for Hub24 is still significant. In FY20, the company's market share increased from 1.5% to 2.1%. 

IOOF agreement 

Last Friday, Hub24 announced it had entered into a binding heads of agreement with IOOF Holdings Limited (ASX: IFL) to collaborate on developing a range of solutions. These include an investment and superannuation wrap platform, utilising HUB24's custody, administration and technology capabilities, as well as a suite of managed portfolios. 

Under this proposed arrangement, Hub24 will provide custody and administration services for IOOF's new private label investment and superannuation solution that will extend the range of products and services offered to the IOOF adviser network and its clients. This is expected to be launched by the second quarter of calendar year 2021.

Citi bullish on Hub24 share price 

On Monday, Citi retained its Hub24 share price target of $24.00 as well as its buy rating. The broker believes the company is well placed to take advantage of the ongoing structural shifts in the wealth management sector. It also sees the agreement with IOOF as a positive which will allow the business to build additional volume and scale. 

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia has recommended Hub24 Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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