Buy this ASX tech stock with a $600b opportunity

Bell Potter thinks investors should be investing in this growing company.

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If you're wanting to invest in the tech sector, then you may want to consider Hub24 Ltd (ASX: HUB) shares.

That's the view of analysts at Bell Potter, which see value in the investment platform provider's shares and a huge long-term growth opportunity.

What is the broker saying about this ASX tech stock?

Firstly, if you're not familiar with the company, it is a specialist investment platform provider with over $100 billion in funds under administration (FUA). The vast majority of this relates to custodial services that provide financial intermediaries with a consolidated way to acquire, hold, and administer a broad range of investments.

Last week, Bell Potter initiated coverage on the ASX tech stock with a buy rating and $53.20 price target.

Based on its current share price of $46.88, this implies potential upside of approximately 13.5% for investors over the next 12 months.

Commenting on its initiation, the broker said the following:

We initiate on HUB with a Buy recommendation and a Target Price of $53.20 p/s. Our favourable investment view is supported by: (1) changes in advice, with investment professionals shifting away from institutionally owned platforms while seeking comprehensive technology solutions; (2) single digit market share and leading capital flows; and (3) increases to the super guarantee contribution and rollovers into self-managed super funds.

$600 billion opportunity

Bell Potter highlights that the area of the market that Hub24 operates is suffering from a lack of investment in technology. In light of this, it sees Hub24 as well-positioned to capture an estimated $600 billion in FUA from incumbents on legacy systems. It adds:

Traditional Dealer Group attrition and a decade of underinvestment in technology has been a tailwind for specialist platform providers. Incumbents with legacy systems have ~$600bn in total FUA that could be redistributed in the medium-term. Adviser ratings recognised HUB as the best functional platform for the second consecutive year and we see this as an opportunity to upsell on capital flows.

So, with this ASX tech stock having such a bright future and trading at a discount to rival Netwealth Group Ltd (ASX: NWL), it feels now is the time for investors to invest. Bell Potter concludes:

Netwealth is trading on a blended 1 year forward EV/EBITDA of 32.9x with lower forecast FUA and mature EBIT margins. We don't believe HUB's trading discount of ~26% is justified and see the potential for it to rerate, predicated on superior technology, recurring revenue growth and operating leverage.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Hub24 and Netwealth Group. The Motley Fool Australia has positions in and has recommended Netwealth Group. The Motley Fool Australia has recommended Hub24. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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