Morgan Stanley hikes HUB24 price target
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The news: Morgan Stanley hiked its price target on HUB24 by 9.7%, forecasting that the wealth platform will continue to grow funds under administration (FUA) and increase its market share over the near term.
The numbers: Morgan Stanley raised its price target on the stock from $56.50 to $62. Analysts said HUB24's FUA guidance for FY26 of $115 billion to $123 billion was "conservative" as the company's net inflows were run-rating at $14 billion to $16 billion compared to a target $11 billion.
They flagged that HUB24 should have a long runway for FUA growth given it has a low market share of around 7% and a "strong value proposition". The analysts also forecast HUB24 to expand its EBITDA margin by 3.4 percentage points to 39.4% in FY25.
HUB24 shares were up 0.9% to $57.68 by 10:25am AEST, having gained nearly 60% since the turn of the year.
The context: Morgan Stanley analysts noted that HUB24, as well as ASX rival Netwealth, had been "very successful at disrupting incumbent platforms, supported by their pure play models, strong value propositions and regulatory tailwinds".
They see scope for "outsized share gains" as HUB24 scales and continues reinvesting in its products and services. Meanwhile, the analysts expect the sector's incumbents to find it "increasingly challenging" to reinvest as they cede market share to disruptors, which should accelerate share losses.
Industry feedback suggests incumbent operators will continue ceding market share to both HUB24 and Netwealth due to less product functionality, deteriorating service levels and an increasing shift away from vertical models, they said.
Longer term, the analysts prefer Netwealth, viewing the company as higher quality due to it being founder-led with stronger cash flow conversion and organic growth. However, in the near term they prefer HUB24 over Netwealth given it had delivered stronger net inflows over the last 12 months. It also has higher projected earnings per share over the next three years to FY27.
The source: Morgan Stanley research
