Hargreaves Lansdown (HL.) has been growing at a rapid pace – more than doubling its assets under administration during the past four years. As a result of this increase in scale and in the complexity of its business, the Financial Conduct Authority (FCA) plans to reassess the regulatory capital it requires Hargreaves to hold. Management estimates it will need to retain an additional £50m and has decided to scrap the special dividend for the 2017 financial year. Management intends to maintain the 65 per cent payout ratio for its ordinary dividend: full-year results are due on Tuesday.
Hargreaves does not have a track record of being particularly acquisitive. Instead it has paid out excess cash via special dividends during the past two years as its earnings have grown. However, that’s also meant that while its assets have grown, so too has its assets-to-equity ratio.
The payment of special dividends has taken the payout ratio to around 90 per cent during the two years. It seems likely management will revise its total payout ratio to a lower level, if it continues to grow at a similar pace.
Shares in the self-investing behemoth dipped 5 per cent on the day of the announcement. That was despite management trailing a set of consensus-beating trading figures ahead of its full-year results next week. Assets under management were up more than a quarter to £79.2bn, comprising net new business £6.9bn. Pre-tax profit was around £266m, up a fifth on 2016. Analysts at Shore Capital anticipate upgrading their earnings forecasts for 2018 by 4 per cent based on these figures.
