From left: Simon Hoyle, Nathan Jacobsen, James Tracey, and Paul Kelly

While different players in the advice chain jockey for their share of the pie, an equity researcher has identified the stark contrast between the valuation of platforms and licensees.

At the Professional Planner Licensee Summit, Veritas Securities director of industrials research James Tracey spoke about the gap between the valuation of listed platform companies and licensee businesses.

Tracey listed Diverger, Centrepoint Alliance, WT Financial Group, Count, and Sequoia as the five “pure play” licensees.

“Cumulatively they’ve got 2000 advisers and the market cap is around $250 million,” he said.

“You compare that to say, a prominent platform [like] Netwealth… There’s a question around the share of the pie.”

The market cap of Netwealth is valued at $3.3 billion, with around 3500 advisers using the platform. HUB24, which has a similar number of advisers using its platform, has a valuation of $2.1 billion.

“We’ve talked about superannuation being a $3.5 trillion industry – there’s lots of players, licensees, advisers, platforms, fund managers, super funds… what’s the fair allocation for the fee for service for all of that? The licensees have had a historically low valuation relative to the number of advisers they service,” Tracey said.

Of the five listed licensees mentioned, Tracey noted the average EBITDA multiples are only 5x versus three years ago, which was 6-11x.

“The valuation is down 30-50 per cent,” he said.

Tracey said the licensee market is more challenging for smaller companies.

“As interest rates have risen, small companies underperform the larger index by around 30 per cent, on average,” he said.

He added that discussions about consolidation have occurred within the industry because many small companies “probably spend about half a million dollars each in ASX-listed fees”.

“If they merged, there would be a fraction of that,” Tracey said.

“There’s an opportunity there, and it hasn’t happened.”