Financial technology companies, also known as fintech ASX shares, have been demonstrating rapid growth. But, simply growing quickly may not be enough for them to be labelled as opportunities. Are they good value buys?
There are a variety of functions served by different fintechs. Some of them provide platform services for clients and their advisers to monitor, report and choose investments.
These are two of the biggest and fastest growing businesses in the Australian sector:
Netwealth Group Ltd (ASX: NWL)
Netwealth was the fastest growing platform in the industry in both percentage and absolute terms in FY21. It's expecting to take further market share in the years ahead.
The fintech points out that big four banks are exiting, or have already exited, financial advice and the largest platforms have experienced long-term and major outflows, such as AMP Limited (ASX: AMP).
The changing financial advice landscape is leading to the establishment of new independent advice groups, while other formerly aligned advisors move to existing independent advice groups. Netwealth is being provided with "significant new and substantial opportunities."
Growth is coming through in the quarterly numbers that the fintech ASX share is revealing to the market each quarter.
Funds under administration (FUA) at 30 September 2021 was $52 billion, a 10.2% increase quarter on quarter and a 52.7% increase year on year. FUA net inflows for the last quarter were $4 billion, an increase of 111% compared to last year.
Credit Suisse currently rates Netwealth as a buy, with a price target of $17.80. It also thinks that an acquisition of Praemium Ltd (ASX: PPS) could be compelling.
Hub24 Ltd (ASX: HUB)
Hub24 is another fintech ASX share that is benefiting from the exit of the major banks and the difficulties from other large competitors.
It is a competitor to Netwealth and is also growing very quickly. In the three months to September 2021, Hub24's FUA at 30 September 2021 had increased to $63.2 billion. Platform FYA of $45.4 billion was an increase of 9.5% quarter on quarter and 139% year on year.
In recent times, Hub24 decided to launch a takeover of Class Ltd (ASX: CL1), a cloud accounting software provider. Hub24 is going to pay $0.125 cash per Class share plus 1 Hub24 share for each 11 Class shares.
The idea behind this acquisition is that it will accelerate Hub24's platform of the future strategy, giving it further strength to be a leading provider of integrated platforms, technology and data solutions for financial professionals and their clients. The combined business is expected to provide a competitive advantage and diversification of revenue for both companies.
Hub24 said it was expecting this acquisition to add at least 8% to earnings per share (EPS), with cost synergies of approximately $2 million per annum.
Credit Suisse also rates Hub24 as a buy as well, but with a lot more upside. The broker's price target for the Hub24 share price is $36.50 – that's around 40% higher than where it is today.
On the broker's numbers, the Hub24 share price is valued at 46x FY23's estimated earnings.
