The first quarter of 2025 was a challenging one for US equities, but Francis Gannon from Royce Investment Partners, part of Franklin Templeton group of companies, says the conditions for small-caps to flourish may be forming.
As with so many debates that have passionate adherents, the value-versus-growth debate is not one where investors need to pick a side. Ultimately, both value and growth styles serve complementary roles.
Smaller platforms have starred on ASX, but brokers back them to keep rising
In the wake of the Royal Commission, the likes of Netwealth, HUB24 and Praemium have all grabbed market share from the legacy platforms – a term that covers Insignia, CBA/Colonial, BT/Westpac and AMP North – on the back of superior technology, competitive pricing and a better product, with functionality to meet new regulatory requirements being deployed much quicker than the legacy platforms can manage.
The specialist platform providers are expected to maintain this growth momentum in coming years, taking on an increasing share of the direct investor market along with independent advisers.
All three of the three listed specialist platform providers continued to lift their funds under administration (FUA) in the most recent half-year, to December 2024.
HUB24 reported the biggest FUA surge for the period, with growth of 33 per cent, from $91.2 billion in the first half of FY24 to $120.9 billion. The company upgraded its platform FUA target to a range of $123 billion–$135 billion for FY26, from a previous range of $115 billion–$123 billion.
Netwealth was not far behind, posting FUA growth of 30.2 per cent, from $78 billion to $101.6 billion. FUA net flows were $8.5 billion, more than 80 per cent up on the $4.7 billion reported in the first half of FY24. The company posted two consecutive quarters of record net flows, Netwealth highlighted, with $4 billion in the September quarter and $4.5 billion in the December quarter. Netwealth followed this with a third-quarter FUA net flows figure of $3.5 billion, up 29 per cent and a new third-quarter record. The company said total FUA grew by $19.4 billion in 12 months to 31 March 2025, to $104.1 billion.
The smaller Praemium lifted its FUA by 29 per cent, from $48.3 billion to $62.1 billion, during the first half. The net flows for the six months came in at $510 million, with the vast bulk of that ($426 million) coming from its SMA offering, supported by inflows of $18 million from Powerwrap, inflows of $69 million from Spectrum, and outflows of $3 million from OneVue.
Given the market turmoil in April, the wealth platforms are facing a period of negative markets, which the analysts at Citi see as bad for FUA, but not as bad for earnings. Citi says third-quarter flows will likely be solid, but continued market weakness could impact the fourth quarter.
The share price growth and the returns to investors have matched the market share growth that the specialist wealth platforms have shown. But are they still worth buying?
Here’s the tale of the tape, as told by analysts’ consensus numbers collated by Stock Doctor/Thomson Refinitiv.
Netwealth (NWL, $25.45)
Market capitalisation: $6.2 billion
12-month total return: 33.8 per cent
3-year total return: 25 per cent a year
5-year total return: 29.5 per cent a year
Estimated FY26 dividend yield: 1.8 per cent, fully franked (grossed-up, 2.5 per cent)
Estimated FY26 price/earnings ratio: 46.6 times earnings
Estimated FY26 return on equity (ROE): 69 per cent
Analysts’ consensus price target: $28.56 (Stock Doctor, 16 analysts)
Hub24 (HUB, $64.40)
Market capitalisation: $5.2 billion
12-month total return: 59.3 per cent
3-year total return: 36.3 per cent a year
5-year total return: 50.2 per cent a year
Estimated FY26 dividend yield: 1.1 per cent, fully franked (grossed-up, 1.6 per cent)
Estimated FY26 price/earnings ratio: 47.6 times earnings
Estimated FY26 return on equity (ROE): 20.5 per cent
Analysts’ consensus price target: $75.50 (Stock Doctor, 16 analysts)
Praemium (PPS, 67.7 cents)
Market capitalisation: $323 million
12-month total return: 64.1 per cent
3-year total return: 2 per cent a year
5-year total return: 20.6 per cent a year
Estimated FY26 dividend yield: 3 per cent, fully franked (grossed-up, 4.2 per cent)
Estimated FY26 price/earnings ratio: 17.4 times earnings
Estimated FY26 return on equity (ROE): 16.1 per cent
Analysts’ consensus price target: 90 cents (Stock Doctor, seven analysts)
On a total return basis, as a superior dividend-payer, this would imply that the minnow of the group, Praemium, represents the most promising investment right now – it is much cheaper on P/E grounds, too.
Netwealth and HUB24 still look likely to give an investor capital gain, but a glance at the total-return growth rates this pair have racked-up in recent years should give a prospective investor reason to pause: those are eye-watering rates of return growth, and are very difficult to maintain.
However, broker Morgan Stanley has upgraded Netwealth to ‘overweight,’ arguing that it has pulled back about 21 per cent from recent highs – compared to an 11 per cent fall for the S&P/ASX 200 – and this gives investors the opportunity to buy a structural growth story, as advisers migrate from incumbent platforms to specialist platforms. Netwealth has a market share of about 8.5 per cent, but Morgan Stanley sees no reason why NWL can’t get to 15 per cent–20 per cent market share over time.
Morgan Stanley also rates Hub24 as ‘overweight’. The broker thinks both NWL and HUB will both be long-term platform winners, but in the long-term, it prefers NWL, given that it is founder-led, is a cleaner organic growth story, and has higher earnings quality. But in the near-term, the broker prefers HUB given it has more net inflow momentum, higher EPS growth and a lower P/E multiple, in Morgan Stanley’s reckoning.
Broker Citi rates both NWL and HUB as ‘buy,’ saying it expects structural growth to continue, and also sees the overall platform industry benefiting from inflows from Industry funds.
Meanwhile, broker Bell Potter says Praemium “presents a source of value,” trading (in its view) on 19 times forecast earnings, with building exposure to Custodial FuA growth outside of managed accounts and certain wealth advice groups, as evidenced by support of the new Spectrum product. Bell Potter says PPS has managed to keep its lead as the third best platform overall — behind Hub 24 and Netwealth — “demonstrating the accomplishment of technology spend, relative to its more profitable peers.”
