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Hargreaves' assets fall on weak markets

The platform provider suffered during the first half as investor nerves dampened inflows
January 30, 2019

“People haven’t had the enthusiasm to trade because they’re just nervous about what happens next,” says Hargreaves Lansdown (HL.) chief executive Chris Hill. Brexit-induced uncertainty and fears around ongoing global trade wars have deterred UK retail investors from parting with their cash, which meant net new business was £2.53bn during the investment management provider's first half – almost a quarter lower than in the prior year. Negative market movements of £8.2bn meant assets under administration fell 6 per cent during the six-month period to £85.9bn.   

IC TIP: Hold at 1703p

The core Vantage platform suffered not only due to increased circumspection among investors, but was without the elevated transfer levels gained in 2017, which followed service issues at Barclays' Smart Investor platform. Lower volumes meant revenue at the sharedealing business fell 2 per cent to £42.1m, which given the relatively fixed cost base meant the net revenue margin also dipped from 31 basis points to 27. Fortunately, the funds business – which accounts for 55 per cent of average assets under administration – was more stable, with revenue rising 6 per cent thanks to new business. An increase in the Bank of England base rate also meant the net revenue margin on cash sitting on the platform rose from 43 to 67 basis points.

Increased marketing for Active Savings helped the recently launched service – which gives clients access to a range of 19 fixed-term savings accounts – gain £281m during the second quarter alone. As a result, assets under administration climbed to £385m at the end of December.

The platform provider has also invested heavily in technology, helpdesks and marketing over the past 18 months. “I didn’t think that service levels were where they should be,” says Mr Hill. During the first half, operating costs rose by a fifth, with staff costs jumping the most. However, Mr Hill says management is taking the “responsible” approach to lower the rate at which it increases spending to low single digits.

Analysts at Numis expect adjusted pre-tax profits of £298m during the year to June 2019, giving EPS of 50.7p (from £292m and 49.8p in 2018).

HARGREAVES LANSDOWN (HL.)  
ORD PRICE:1,703pMARKET VALUE:£8.08bn
TOUCH:1,701-1,703p12-MONTH HIGH:2,272pLOW: 1,588p
DIVIDEND YIELD:1.9%*PE RATIO:34
NET ASSET VALUE: 81pNET CASH:£322m
Half-year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201721614725.010.1
201823715326.110.3
% change+9+4+4+2
Ex-div:14 Feb   
Payment:10 Mar   
*Excludes 2018 special dividend