Hargreaves Lansdown pulls in the business

Confirmation of a strong third quarter trading performance from Hargreaves Lansdown was overshadowed by news that co-founder Peter Hargreaves is to step down as chief executive. His position will be taken in the autumn by the current chief operating officer Ian Gorham, who meanwhile has been promoted to deputy chief executive. However, 63-year old Hargreaves, who holds nearly one third of the company's shares, will stay on as an executive director focusing on client relationships. Together with partner Stephen Lansdown, Peter Hargreaves started the retail brokerage firm in 1981 and floated in 2007, since when the shares have more than doubled.

Meanwhile, business is booming. The third quarter of its financial year is traditionally the busiest ,and there has been a significant acceleration in savings, with new individual savings accounts (Isas) contributions in the tax year to 5 April rising from £412m to £812m, while funds in self-invested personal pensions (Sipps) grew to £1.35bn, up from £1.09bn a year earlier. Active Vantage client numbers were up by 18,000 to 318,000 in the third quarter alone, and overall account numbers rose from 471,000 to 497,000.

Operating profits for the first nine months of the financial year are up 16 per cent from a year earlier, at £113.9m, with the percentage of income from recurring revenue up from 71 per cent to 72 per cent. Indeed, higher asset values and new business inflows have been more than enough to offset the impact of lower investment income from cash holdings as a result of the fall in interest rates. Total assets under management grew by £2bn in the third quarter to £17.6bn.

Canaccord Adams says...

Buy. Record inflows onto the Vantage platform prompts us to raise the share price target to 425p and to move our recommendation from hold to buy. Client numbers at 318,000 have already exceeded our June 2010 estimate, and these numbers do not include the all-important final week before the end of the tax year. Revenue margins have also held up well at 78 basis points (bp) compared with our previous estimates of a fall to 75bp. What's more, the shares are supported by a 4 per cent yield (when including the special dividend payment) in addition to continued earnings growth potential. Expect adjusted pre-tax profits for the June 2010 year-end of £87.6m and EPS of 13.1p, rising to £127.2m and 19.3p in 2011.

Numis Securities says...

Buy. Hargreaves Lansdown continues to perform strongly, and in the wake of the interim management statement, we have revised our 2010 adjusted pre-tax profit forecasts up from £87.6m to £91.4m and EPS from 13.5p to 14.1p. Yet, despite the group's first-class track record, it controls only 0.3 per cent of the UK's pension assets, so there is considerable scope for growth, especially as defined benefit pensions become a thing of the past and are being replaced by defined contribution schemes, which should increase the already strong demand for Sipps, while demand for Isas is also likely to grow. Given the strong growth projections, the shares are trading at a premium to other wealth management operations, but this is not a demanding valuation given the fact that average EPS growth over the past five years has been 47 per cent.