Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HUB24 Ltd (ASX:HUB, Financial) reported a 17% increase in group revenue, reaching $327 million.
- The company achieved a 15% growth in underlying EBITDA, totaling $118 million.
- Statutory NPAT rose by 24% to $47 million, while underlying NPAT increased by 15% to $67 million.
- Record inflows of $15.8 billion were reported, including significant large transitions.
- The company continues to be recognized as Australia's best platform, winning multiple industry awards.
Negative Points
- The underlying EBITDA margin decreased by 0.5% year-on-year to 36.1%, primarily due to deposit impacts.
- Operating expenses increased by 18%, slightly outpacing revenue growth.
- The average cash balance as a percentage of custody FUA decreased to 7% in the second half, impacting revenue margins.
- The company is 12 to 24 months behind its initial revenue targets for the myprosperity acquisition.
- There is uncertainty regarding the sustainability of the strong start to the year, with potential macroeconomic factors affecting future performance.
Q & A Highlights
Q: Last year was an incredible year as you highlighted, whereas the kind of next couple of years outlook caused the net flows above that $11 billion level. It seems you're no longer entertaining a level of 10% to 12%. So just wondering what's giving you the confidence that the margin there sort of upgrade entry?
A: Look, we certainly had a very strong start to the year, and it's always difficult to provide guidance. We don't want to be providing guidance and restating it. We aim to give a range and it is a range deliberately. And our goal is to head towards the top of that range or in some cases, even overshoot it. So we've had a very strong start to the year. We're not seeing any resurgence from traditional platform players or participants in the marketplace. And so we decided to say greater than $11 billion. We didn't want to cap it. We certainly know that we've got $2 billion to $2.5 billion on our plan still as we previously disclosed for EQT. So the $11 billion-plus that gets us into the range. I think that the adviser sentiment is there. We're winning the awards, the accolades from a service point of view and a product point of view. And so the beauty in our business is you continue to win flows from existing clients, continue to win new clients. We still had 500 new advisers last year. We still signed 141 distribution agreements. I think all those things add up to us being very confident in the growth prospects and leading to those that statement.
Q: You mentioned in the second half, there was about 10 new heads joining the business. The audio was a little bit mixed at the time, but can I just get you to reiterate the expectations for hiring looking ahead?
A: Yes, (inaudible) the first half '24 was really where we did quite the bulk of the hiring and then it slowed in '20, in the second half of '24, and that the second half is more indicative of what we're expecting each half over '25.
Q: Just a question around the run rate impact of lower proportion of cash and the mix of institutional floor on the revenue margin as we head into first half '25?
A: Yes. So the cash is obviously subject to customer preferences. We, the whole of the second half '24 saw the, you would have seen we provided the average in the analyst and investor pack and that was around 7% for the whole of second half '24. We have seen a slight uptick in that over the last 6 weeks. So that's not to say that, that will hold for the whole year. But it's certainly not at the 8% to 10% that we've historically spoken about. So it's still at that lower end of the range that we've spoken about before.
Q: Just on that flow number, around $2 billion ex market movement. Is there anything from the QT transition embedded in that?
A: No, Olivier. There's no EQT money in there. There is a client that moved about $300 million rapidly in that, but that happens from time to time. It's educational institution that was able to move money quickly with the custodial, but it's a retail rate card. So those things happen, but there is one small lumpy clients in there as well.
Q: The thinking on the tax rate going forward, one for Kitrina.
A: Yes. So the tax rate, we're benefiting from two things at the moment. One is we've got R&D. So we're always innovating and we've got myprosperity, Class and HUB24 that are all innovating on the solution. So there's a benefit in there for R&D. We've also got, you've seen the long-term incentive plans in the employee share schemes that we've got in place. Over the last, I think it's circa 3 years, we've seen rather than issuing shares on market. We've been purchasing shares and in the last financial slide, you would have seen that we purchased $10 million worth of shares put in trust to service the employee share schemes. As we utilize those shares in the employee share to us, we get a tax deduction for those. So they are two things that's driving it down to the 20% at the moment. R&D is expected to continue as we continue to innovate. The treasury shares and the benefit that we'll get on that, once we're 100% hedged in there, that's more likely to normalize. So you can expect the tax rate to move up from the 20%. And without a crystal ball, but it could go somewhere in the mid-20s, I would say.
Q: Just a couple for me. Just in terms of investment in intangibles, it's obviously stepped up a little bit. Can you give us a sense of how we should be thinking about that number going forward?
A: Yes. So I think you would have seen the Platform was circa $13 million, $13.5 million, something like that, and the Tech Solutions was just under the $8 million. Certainly, from a Platform perspective, I would say that's more of a normal run right now. It was, for the last couple of years (inaudible- microphone inaccessible) down at the $8 million, $8 million, $9 million mark, and that's because we did have quite a large integration with Explore and a large number of our tech team. We're also supporting that integration. Now that we're coming to end of that tech teams, again, refocusing back on to the Platform or the whole team, I should say, as we're focusing back on to the platform as it were. Then on the Class and the Tech Solution side, look, we've called out before that we are looking at extra ways to scale that business and make it more efficient. You may well see that trend down over time, but it's certainly not going to be a massive step change. It will be trending down over time.
Q: Just on the average cash balances, again, 7% in the second half. I mean, is that a good base to forecast into the next few periods?
A: Look, it really does depend on macro cycles. It's not actually something we control or can forecast. It depends on how people are thinking about equity markets versus cash markets. And so right now, you've got markets at historical highs. People have put them only into the market if that changes, the cash rate arguably would go up and then interest rate cycles. So not something we can comment on. It has gone up in the last few months. But that might be as a result of the large flows we get. So it depends on behavior, it depends on how assets join the platform. It's very difficult to forecast.
Q: Just three questions. First one, on the
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
