The investment platform business reported FY23 results yesterday that delivered slightly higher than expected overall revenue ($74.3m) while underlying EBITDA ($23.42m) was inline with our expectations due to rising costs, particularly in cybersecurity and a general increase in labour expenditure across the board. Growth remains slower than the other platforms, and PPS don’t have the same scale as HUB or NWL, with funds under administration (FUA) of $44.0b, up $1.4b for the year – (HUB have $80.3b).
There are two ways investment platforms hold assets, through a custodian structure which is how the bulk of funds on HUB and Netwealth are held, or a non-custodial structure which is where PPS dominates being the No 1 provider (although they still also operator custodial services & vice versa from the other platforms). In practical terms, a separately managed account (SMA) for example is held in custody while a managed discretionary account (MDA) is held non-custodial, via a HIN. There is more flexibility in a non-custodial structure versus a custodial structure, however, the issue with this greater flexibility from the providers perspective is a higher cost to service and with tight labour markets and rising labour costs, this was a headwind for PPS during the period.
- While PPS have around half the FUA as HUB, HUB enjoys a market cap 8x the size of PPS which sits at just ~$313m making it incredibly cheap relative to the FUA on their platform.
MM remains patiently long PPS in the Emerging Companies Portfolio
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