Hub24, Praemium, Netwealth: Are these the best fintech shares to buy today?

Should you buy Hub24 Ltd (ASX:HUB) or Netwealth Group Ltd (ASX:NWL)?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

I must admit the rise of a cohort of fintech stars over the past 24 months has largely passed me by, but that could be a costly mistake given the strength of fund administration platform providers benefiting from a couple of powerful tailwinds.

Just take a look at the rise of these three fintech shares:

Hub24 Ltd (ASX: HUB) up around 150% in 2 years to $13.06 today, with a market value of $808 million

Praemium Limited (ASX: PPS) up around 110% in 2 years to 74 cents per share today, with a market value of $294 million

Netwealth Group Ltd (ASX: NWL) up 110% to $7.72 since its November 2017 initial public offer at $3.70 per share, with a market value of $1,825 million

Before we take a look at each individually, it's worth noting how a rising tide has combined to lift all these boats. In particular a few factors are helping:

  • Australia's system of compulsory superannuation is feeding a ballooning superannuation pool of funds looking for platforms through which to administer investments.
  • Fintech and the rise of online technologies or scalable business models built on software has allowed these companies to carve out profitable niches for themselves.
  • Finally, the strongest tailwind is that the 'big banks' are now losing market share to these independent specialists due to the fallout from the Royal Commission in particular. On the one hand the reputational damage to the banks has lead many self directed investors to simply prefer independent platforms, while on the other it seems that regulation is set to put an end to the 'vertical integration' model whereby platform providers like the banks also sell their own financial products on the platforms. If this kind of 'vertical integration' is banned or restricted a lot more money will be all but forced onto independent platforms.
  • Notably groups like Netwealth still only have a low-single digit percentage market share, while the likes of Westpac Banking Corp's (ASX: WBC) BT Investments subsidiary platforms have market share around 18%. Others like the Commonwealth Bank of Australia's (ASX: CBA) Colonial First State have a comfortable double-digit market share. However, it's the regulatory problems 'vertical integration' is causing the banks that is making them look to divest their wealth planning businesses.

As noted previously though I'm not familiar enough with any of the platform businesses to pass judgement, although there are a couple of points for investors to consider.

First up is that they still appear to have long growth runways and have scalable, capital light business models in that they don't have to take on much more cost to take on more funds under administration.

This is a positive, but it should also be noted that this is a competitive space, with not especially high barriers to entry, while a lot of future growth is baked into their share prices.

Finally the competition factor could keep a lid on profit margins going forward as these businesses will struggle to command much pricing power unless they can demonstrate clear advantages over rivals.

For now then I'm keeping them on my watch list for further investigation….

Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Praemium Limited. The Motley Fool Australia owns shares of Netwealth. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Gainers

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Gainers

Why Dimerix, Newmont, Regal Partners, and Titomic shares are storming higher

These shares are having a good finish to the week. Let's see why.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Share Gainers

Why Fortescue, Lynas, PEXA, and Regis Healthcare shares are charging higher

These shares are having a strong session on Thursday. But why?

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Share Gainers

Why Capricorn Metals, Insignia, Perseus Mining, and Qoria shares are storming higher

These shares are having a strong session on Tuesday. But why?

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Share Gainers

Why Amaero, AMP, Block, and South32 shares are racing higher today

These shares are starting the week on a positive note. But why?

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another momentous session for ASX shares this Friday.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why BHP, Catalyst Metals, Mesoblast, and Pilbara Minerals shares are shooting higher

These shares are ending the week with a bang. But why?

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

The Mesoblast share price just rocketed 38%! Here's why

ASX investors just sent the Mesoblast share price up 38%. But why?

Read more »