Both platform businesses finished FY20 with strong inflows, but Netwealth is overvalued while HUB24 offers a superior growth rate, says Ord Minnett.
HUB24 had $17.2 billion of total funds under administration for FY20 while Netwealth had $31.5 billion. Both finished FY20 with strong flows.
"HUB24's valuation relative to NWL has diverged significantly, with both trading on similar FY21 PE ratios but HUB24 growing ~6x more rapidly in FY21 and ~3x in FY22 (using like-for-like capex, share based payments & tax adjusted EPS),"Ord Minnett head of institutional research Nicholas McGarrigle said in a note sent out last evening after HUB24's quarterly update.
Ord Minnett has held HUB24 on a buy while moving Netwealth to a sell (previously hold). It has moved HUB24's target price to $17 per share from previous $13.71.
|Sponsored by Insight Investment|
Towards a perfect currency solution
Netwealth target price was moved to $9.55 from previous $7.70.
"While NWL has rallied 37% above its pre-COVID levels, HUB is up just 15% despite producing higher relative flows through 4Q20 (NWL underlying 4Q20 flows were 5.5% of Mar-20 FUA vs 7.2% for HUB)."
"NWL is trading on a lofty FY21 PE of 59x compared with its FY20-23 EPS CAGR of 19%, while HUB is on the same PE but has an EPS CAGR of 61%."
Ord Minnett expects HUB24's like-for-like EPS (ie fully-expensed development, share-based payments and tax) to grow 74% in FY21 and 65% in FY22. For Netwealth the growth will be 12% and 23% respectively.
"We remain positive on the market positions and business dynamics of both NWL and HUB, but see the former as over-valued, preferring the superior growth rate offered by HUB."