Hub24 Ltd (ASX:HUB) shares will be temporarily suspended from trading after the company requested a trading halt following an article published in The Australian Financial Review.
Why the trading halt?
Hub24 requested that its shares be put in a trading halt in order for the company to make clarifications regarding an article published in The Australian Financial Review earlier today.
The article implies that the second successive cut in the official cash rate will result in account holders in specialist investment platforms like Hub24 earning a negative return on their cash. The article further explains that negative net returns on the platforms will result from a combination of falling cash rates, administration fees and indirect impact of gross profit margins on accounts.
Specialist investment platforms like Hub24 make up to a third of their revenue from cash margins, which is a spread on the interest charged on the cash in a holders account. The article provides an example of how these factors can result in negative net returns for account holders. Given 175 basis points of interest rate on a pool of cash in an account holder, the platform takes 125 basis points as revenue (cash margin). The account holder then receives an effective 0.5% interest rate (50 basis points) on their cash and will then have to pay an administration fee of 56 basis points to the platform. This leaves the account holder with a negative net effective return of minus 6 basis points.
Although negative net returns on cash feature in Hub24 disclosure statements, analysts believe that the company would cut the interest they earn on cash in response to pressure from regulators. As reported in the AFR piece, analysts at Macquarie believe that this will have downward pressure on profit margins and slashed their price target on Hub24 from $10.47 to $8.65.
How has Hub24 performed this year?
After the Hayne Royal Commission, specialist investment platforms like Hub24 have been the big winners as banks pull out of financial advice. Hub24 currently has about $11.5 billion in funds and had the third highest net fund flows with a net inflow of $793 million in the March 2019 quarter.
Following the decline of the official cash rate, the Hub24 share price has dropped more than 26% since the first week of May.
Shares in Hub24 will be in a trading halt until normal trading commences on Friday 5 July or until an announcement is released to the market earlier.
