HUB24 is an administration business that designed an open architecture technology system to enable financial advisors to select and manage a range of investments, from direct shares to managed funds, while still maintaining compliance with the industry's sometimes complex and often changing regulatory system.
by Matthew Smith
When super giant IOOF revealed a takeover offer for HUB24, the tightly held $141 million market capitalised company appeared on the radar of many investors for the first time.
But some interested onlookers– namely the big four banks, large wealth management institutions along with a handful of investment firms – have had their eyes closely fixed on the company for some time.
HUB24 is among a group of companies listed on the ASX that have earned the "next big thing" tag by those in the know within the highly lucrative and growing self-directed superannuation market.
While HUB24 is yet to report a profit, the company's share price has risen almost 70 per cent since the start of this year; early recognition for some of the smartest investors in the market they are on the right track.
Thorney Holdings, the investment firm backed by Alex Waislitz, has the largest stake in the company. Micro-cap specialist Acorn Capital, Paradice Investments and Contango Asset Management are among the largest shareholders in the company. Some of those investors are also prominent on the share registers of other listed companies innovating in the advice and superannuation administration space, including the likes of OneVu and Praemium.
HUB24, along with other technology companies thathave listed on the ASX or are still privately owned – including the likes of Netwealth Investments, Powerwrap and portfolio tools and analytics company, SelfWealth – are addressing the demand for investors to want to be involved in their investment decisions and allocations.
"There was a time when the industry did it to you, then they did it for you, now they're doing it with you," said HUB 24 chief executive Andrew Alcock, as he explained the evolution of the advice industry towards greater choice and transparency, and away from aligned product sales within advice networks owned by financial institutions.
HUB24 is an administration business that designed a technology platform that allows financial advisers to select and manage on behalf of clients a range of investments (from direct shares to managed funds) while still maintaining compliance with the industry's sometimes complex and often changing regulatory system.
Separately managed account
Individuals who receive advice from a financial adviser using HUB24 technology can provide their clients with access to a "white labelled" application, which can be accessed anywhere to keep track of their investment portfolios.
"It's like a different legal structure than a managed fund in which individuals can own a portfolio of investments put together by a professional manager," Mr Alcock said. The structure is known in industry parlance as a separately managed account or SMA.
While banks and wealth management institutions have been required to build the technology on top of their existing systems, HUB24 started with the SMA at the core of its technology, Mr Alcock said.
"Lots of money is being spent by the big institutions on changing legacy technologies; offers like ours show what you can do if you start with a blank piece of paper," he said.
One analyst used the "hundreds of millions of dollars" Westpac was speculated to have spent in the recent upgrade of its BT Wrap platform as a starting point for ascribing value to HUB24 and other businesses in the segment.
The company has rejected IOOF's takeover offer of $2.75 a share, which valued the company at $144 million. The move has been backed by analysts investors.
"An offer at $2.75 per share seriously undervalues the growth potential of this company," said Ben Dalling, a portfolio manager with small and micro caps investor, Acorn Capital.
Mr Alcock, who declined to comment specifically on the IOOF offer, but said: "I think if you've got a company growing this fast it's really hard to value, if anyone is going to buy it they will have to pay for this future growth."
It is understood an unknown institution made an offer to buy HUB24 a few months ago at around the price offered by IOOF, however, the shares were trading at a much lower point.
HUB24 makes its money based on a percentage of assets under administration. Currently the business administers about$2.1 billion, which accounts for about 0.3 per cent of the approximately $600 billion in individuals' savings that are invested via administration platforms.
Mr Alcock described the company's target of $3 billion under administration by the end of December next year and the long term goal of administering between $8 billion to $10 billion as "extremely manageable".
The company has told the market it would become cash flow positive for the first time by the end of the first quarter next year.
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