Hub24: New Initiatives Reflect Intensified Competition; Shares Remain Too Hot to Hold

We lift our fair value estimate for shares in Hub24 HUB to AUD 24.50, from AUD 24.00, reflecting the time value of money. Compared with fiscal 2023, we expect Hub24 will enjoy higher net inflows from fiscal 2024 through to fiscal 2028, with support from recovering industry fund flows—particularly as interest rate hikes stabilize. Net inflows of AUD 2.8 billion during the first three months of fiscal 2024 marked a consistent upward trend from AUD 1.9 billion in the third quarter of fiscal 2023.

However, shares in Hub24 remain overvalued at current prices. We believe the market continues to overlook the trade-off between Hub24′s revenue growth and margin expansion. We continue to forecast Hub24′s market share gains to be slower than in the past five years due to resurging competitive pressures. Moreover, we expect ongoing growth investments and fee compression to limit margin expansion.

Market expectations for simultaneous gains in market share and margins are unrealistic. Initiatives such as the impending launch of a cheaper ‘Discover’ platform, planned fee reductions in certain retail products, and collaborating with Allianz to distribute retirement income products via Hub24 closely resemble recent endeavors by its competitor Netwealth. Notably, Netwealth has similarly relaunched its low-cost ‘Core’ product in September 2023 and began featuring Challenger annuities on its platform. This illustrates that product enhancements in the platform space are often replicated, negating any competitive advantages among operators—underpinning our no-moat rating. Given the commoditized nature of platforms, fees will likely remain the primary basis of competition over the long run. This puts Hub24 at a disadvantage as it remains subscale relative to major institutional platforms.

For us to reassess our thesis, Hub24 would need to accelerate its market share gains in a maintainable manner, while most major platforms experience faster share losses. This is unlikely in our view.