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Hargreaves Lansdown faces market turbulence

Created:
26 November 2007
Written by:
Jonas Crosland

Hargreaves Lansdown has come a long way since it floated in May this year. Profits rose strongly in the first half of the year, and despite the unfavourable trading conditions that developed over the summer, the company has managed to increase assets under management (AUM) in the three months to the end of September.

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True, the rise in AUM from £10.2bn in the previous quarter to £10.6bn was relatively modest, but the FTSE All-Share index fell 2.6 per cent over the same period. Much of the improvement came in the group's direct-to-private investor fund supermarket and wrap platform, Vantage, and net inflows here more than offset a negative performance in equities. What's more, the number of active Vantage clients rose from 218,000 in the previous quarter to 223,000. For Hargreaves Lansdown, the advantage of the Vantage platform, which allows clients to place investments in any number of tax-efficient saving schemes, is that the business earns a commission both as a distributor of the saving schemes and also as an administrator.

INVESTEC

Sell. Hargreaves Lansdown is the best managed wealth management business in the UK with the strongest organic growth prospects. The group operates in an attractive segment of the market, principally targeting investors with assets of between £50,000 and £200,000 through its highly efficient and low cost Vantage platform. Around two-thirds of income is from recurring revenue, and clients are less inclined to shift funds having established them in tax efficient saving schemes. However, with trading conditions remaining tough, the business is facing a significant headwind to achieve full-year forecasts. Expect full-year pre-tax profits of £59m and EPS of 8.5p.

LANDSBANKI

Buy. Third-quarter results were encouraging with strong net inflows helping to negate the effects of falling equity prices. The picture is also bright because the group continues to attract new clients, and the value of assets held in its Vantage platform has also increased. However, while net inflows to Vantage ISAs were up 70 per cent from a year earlier, Vantage PEP inflows were down by 20 per cent. It is difficult to draw too many conclusions from the latest reported quarter, but despite the volatile nature of equity markets at the moment, Hargreaves Lansdown feels confident on the prospects for the full year.

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