Daily notes – Praemium, HUB24 & Netwealth

Praemium (PPS) – giving in to vanity… HUB24 (HUB) and Netwealth (NWL) – in a holding pattern…

Praemium (PPS) – giving in to vanity

Praemium decided this quarter to include their non-custodial assets in their official reported Funds Under Advice (FUA) statistics. Given this segment accounts for $6.5 billion of the total reported $16.1 billion in FUA, this seems a little disingenuous. These accounts are charged based on a flat-fee per account as opposed to the custodial service, which charges based on FUA. 

We can only surmise from this that the company will be using this padded vanity metric when comparing themselves to their competitors in the industry, including HUB24 and Netwealth. Both have been more successful in attracting custodial funds away from the incumbent giants. While they’ve been asleep at the wheel or dealing with crises in other areas of their businesses, their platform businesses have been slowly whittled away.  

PPS also advised that they achieved net inflows of $405 million taking platform FUA to $9.5 billion. The stock price has bottomed for the moment after having fallen more than 70% from a high of $1.15.  

Competition in the sector has intensified. Not only between the independent upstarts but the incumbents have also begun to respond to their losses in market share. This has lead the market to question whether there’s enough room for a third independent in the industry.

HUB24 (HUB) and Netwealth (NWL) – in a holding pattern

No one is in any doubt that both HUB and NWL are continuing to grow and gain share from the majors in the platform space. By any measure, quarterly net inflows of $979 million for HUB and $1.5 billion for NWL are impressive statistics. FUA up 54% on PCP to $12.9 billion for HUB and up 30% to $23.3 billion for NWL is equally remarkable. However, both stocks have hardly budged, and both have been in trading ranges for more than a year. 

HUB and NWL have price-sales ratios of more 7+ and 20+ respectively.  They have price-earnings ratios of 130 and 66. Based on these multiples, the market expects nothing less than exceptional growth. The market consensus for continued growth seems to have stabilised around these types of numbers for the foreseeable future for both companies. 

If anything, things have started to get harder for the independents. Hence the markets reluctance to continue to price these issues up. Westpac/ BT and Macquarie have woken-up to the fact that their lunch was being stolen from under their noses. And as a result, have begun to respond with sharper pricing and increased development spend on their own products. 

BTs new Panorama product seems to be gaining traction, having grown to $17 billion in FUA by the March quarter, more than 80% up from the previous quarter. So while the legacy platforms might look outdated, Panorama seems to be able to compete from a technological standpoint. Not to mention the fact that the incumbents can outspend their smaller rivals to catch up or to compete more aggressively on price. The industry is starting to see both tactics being employed. 

Hence the trading ranges. NWL and HUB now have a combined market capitalisation of ~$2.5 billion, making them nearly half the size of AMP with a market capitalisation of $5.2 billion. Now, this comparison doesn’t really mean anything since AMP is more than just its platform business and still has a ton of debt. However, they still have $150 billion in platform FUA, which is more than 4x the combined HUB/ NWL FUA. 

Total net platform flows were -$1.4 billion over the last 12 months. NWL and HUB (and others) are gaining purely at the expense of another provider – mainly NAB, AMP and ANZ at this point. There doesn’t appear to be any system growth happening at this time. The continued growth of the independents is reliant on funds continuing to drain from the incumbents mentioned earlier. CBA and Westpac/BT seems to have stemmed the flow, while Macquarie is still growing. Can the others do the same? 

At the very least margins will tighten, but will top-line growth slow as well?