is hub the next mfg?

Was just having a conversation with first to the table regarding HUB and he suggested I should post it here, so here goes.

FTTT asked if I thought HUB might be the next MFG, stating "they only need a 3rd FUM that Mfg have in order to be at $12-15, given they have a third less shares out. Makes sense. Mfg have $16b? So Hub need around $5b and we have it."

My response:

Totally different business models. One is a fund manager, one is a platform. The only similarity is that both need FUA (well FUM in MFG case) to push revenue. Not that it's really relevant, but at their current pace it would take HUB about 5 years to hit 5b. First thing to focus on is break even.

In my honest opinion HUB has probably overshot a little at this stage, but I'm still in for the following reasons:

1) The HUB24 IP alone is worth 20m+. I've been part of a team that has built a VERY similar capability (we're both measured on the same investment trends platform survey - HUB is rated higher!), and it cost a huge amount to develop the technology supporting the front-end & back-end of what we built. Outside of the IP the relationships they are building with dealerships are very attractive to any of the big players who are all desperate for inorganic growth (and have the money to spend to achieve this). Definitely a take over target.

2) FOFA is going to result in a lot of consolidation in the financial planning industry. A lot of planners are either going to have to join one of the bank/AMP dealership groups or move to a truly independent model. For those who wish to be independent HUB24 is a fantastic capability to place their clients funds into the market. It really is the only truly independent platform left.

3) Capex burn should decrease from 2014 onwards. They spent a heap of cash last year increasing the platform functionality to move the platform to a fully completive eWrap. Now they have TD, direct equities, and SMAs on Platform they should be able to slow capex and focus on profitability.

The only real question now is at what level do these guys become profitable. 1.5b is probably a bit ambitious. 2b is probably more likely, but with a reduction in capex this might happen even earlier. To achieve this a couple of things need to happen:

1) Market needs to move higher
2) Capex burn needs to slow
3) More dealerships need to sign on

If one or more of these happen during 2013-2014, this should move higher.

The other elephant in the room is the Wilson's 1.4b. This was announced to market back in December but they have been very quiet about the deal since that time. This obviously has the potential to have a huge impact on the business, but I'm concerned they have been so quiet in regards to any further updates since it was announced. Doesn't instill confidence.

I sold a small parcel at around these levels a few weeks back. Good opportunity to take profit, but I still have considerable skin in the game. I reckon this a great business, but it's probably a FY15 play.