On Tuesday, Citi updated its analysis on Hub24 Ltd (ASX:HUB), increasing the price target to AUD56.70 from AUD47.00 while maintaining a Neutral rating on the stock. The adjustment reflects a positive outlook on the company's operational performance and market position.
Citi's assessment points to a significant slowdown in Hub24's hiring, which is anticipated to result in robust operating leverage by the fiscal year 2025. The firm projects an increase in year-over-year operating margins by approximately 390 basis points. This expectation is bolstered by Hub24's strong start to the year, marked by higher than anticipated net flows, leading to a 1% to 2% rise in funds under administration (FuA) in the short term.
Despite the potential for upward revisions to flow forecasts, Citi's stance remains neutral due to the stock's current valuation, which stands at 37.5 times the forecasted FY25 earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted for capital expenditures. The new target price reflects this cautious optimism.
According to Citi, Hub24 is reaping benefits from ongoing consolidation activities within the advisory sector. However, the firm also highlights a potential risk: the possibility of reduced revenue margins over the medium term. This concern stems from the growing bargaining power of advisers, which could affect the company's earnings.
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