HUB24 tumbles as Citi downgrades stock
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The news: Shares in HUB24 dived in morning trade, after Citi downgraded the wealth platform on expectations that ASX rival Netwealth would overtake its underlying flows.
The numbers: HUB24 shares were down 5.2% to $44.02 by midday AEST, making it the worst performing stock across the ASX 200. Netwealth, which reported record full-year inflows this morning, was the second worst-performing ASX 200 company, shedding 3.7% to $21.20.
Citi analysts downgraded HUB24 from 'buy' to 'neutral', given its strong share price run in recent months and with its stock trading on around 30 times capital expenditure-adjusted EBITDA compared to FY25 estimates.
The analysts said they expected HUB24 and Netwealth to both have seasonally stronger flows in the June quarter.
They forecast $5.1 billion in net flows for HUB24 which assumed underlying flows of $3.1 billion, up 49% year-on-year, and $2 billion in flows from Equity Trustees. However, this forecast was 6% lower than consensus which Citi said likely reflected lower contributions from Equity Trustees.
For Netwealth, the analysts forecast $3.2 billion in net flows for the quarter, up 6% year-on-year and in line with consensus.
However, the analysts increased its target price for HUB24 by 8% to $46.40 to reflect higher sum-of-the-parts (SOTP) valuation but downgraded it to a neutral rating on valuation grounds.
Citi also revised down its estimate for HUB24's NPATA by 1% to 2% to reflect lower funds under administration (FUA) growth and lower cash balance, partially offset by reduced operating expenditure growth.
The context: Citi noted that HUB24's headcount was now growing slower than Netwealth as it focused on integrating acquisitions, which might support an improved EBITDA margin in the second half of FY24 and FY25.
However, the analysts expect HUB24's revenue margin to decline due to a lower cash margin.
What they said: "Netwealth to overtake HUB24 in terms of underlying flows," the analysts said.
The source: Citi research
