Hargreaves Lansdown on an attractive rating as client numbers climb

The pronounced jump in Hargreaves Lansdown’s (HL.) half-year revenues largely related to net interest earned from cash kept in customer savings accounts. It’s an issue that has attracted criticism from investors and regulators alike. 

Dan Olley, the trading platform’s chief executive, revealed that it “closed the period with cash at 8.5 per cent of assets under administration”, representing a reduction of £1.0bn through the period as clients redirected cash, reflected in a marked expansion of the group’s Active Savings programme. Olley said management expects this trend to continue as clients “put their cash to work” with platform capital “on a glide path to c£11.5bn”. The group increased the options open to clients by launching a cash individual savings account (Isa) last year and its first multi-bank cash Isa in January 2024.

Leaving aside the interest dynamics, assets under management have increased by 6 per cent since midway through 2023 to £142bn, although net new business fell back compared with the prior year. Investor sentiment has waxed and waned depending on geopolitical impacts and the cost of living squeeze, hence the parallel increases in both gross inflows and outflows.

The interim figures garnered a negative response from the market amid concerns over the net interest issue. The client retention rate fell by 110 basis points to 91.6 per cent and there were also mixed messages on the cost base through the remainder of the year. But the long-term structural opportunities open to the platform is reflected in the addition of 20,000 new clients, taking the total base to 1.82mn. On balance, we think that the forward rating of 12 times consensus earnings represents a viable entry point given an implied full-year dividend yield pushing 6 per cent. Buy.  

Last IC view: Buy, 734p, 18 Jan 2024