Hargreaves Lansdown between the rock and the hard place

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The UK’s leading retail investment platform, Hargreaves Lansdown reported figures for the full year ending 30th of June 2021 this week, and though the headline numbers looked impressive, as is so often the case the devil was in the detail.

HL net new business grew by £8.70 billion and assets under administration, or AUA rose by +30% to £135.35 billion

Hargreaves Lansdown (read our full Hargreaves Lansdown review here) now has 1.645 million active clients, adding another 233,000 over the period to the end of June. Underlying profits rose by ++8.0% to £366 million.

However, profits before tax fell by -3.0% over the year, EPS (earning per share) fell by -5.0% and the dividend was cut by 8.0% compared to this time last year.

CEO Chris Hill pointed to what he called “ a record performance and exceptional growth during an extraordinary and challenging year”

Adding that “The pandemic has accelerated two trends that were already evident to us: a permanent shift to digital; and a change in the demographic mix”.

Hargreaves Lansdown had 393 million digital visits in the year to end June 2021 and 98% of trades executed by the firm were instructed online

The average age of the client base is coming down as well and 83% of the firm’s clients are now below 55 years old.

That could well be good for the firm long-term because younger clients live longer and will have the opportunity to do more business with it.

However younger clients are perceived to have lower value portfolios and the market is focused on the shorter term, (the next 2 to 3 years) which translates into negative comments from analysts with, Rhea Sha who covers the stock for Deutsche Bank, for example saying:

“Hargreaves Lansdown missed across the board this morning, with lower-than-expected net flows and revenues and higher-than-expected expenses”

Adding that “we believe the net effect of today’s results and the new guidance should see consensus earnings expectations in FY22-23 decline by low single-digit percentage points.

Whilst Citigroup’s analysts James Shuck and Andrew Baker went further reiterating their sell recommendation and £14.00 price target for the stock, suggesting that increased competition might mean Hargreaves Lansdown might have cut fees to maintain market share making it a continuing “jam tomorrow” story for shareholders.

Shareholders appear to have voted with their feet, and the stock traded down by as much as -£2.00 following the figures, touching a low of £14.31. As yet they have not been able to stage much of a comeback.

Increased competition is often seen as positive for retail investors but it’s not always so, particularly if it creates a race to the bottom mentality over costs, in which there are few winners if any.

In an age where it’s possible to “deal for free,” with commission-free stock brokers this may be where we are headed and that will create a continuing headache for businesses that are trying to increase market share while keeping their own investors happy.

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