Hargreaves Lansdown shares slumped on Friday as its H2 2019 results revealed it had trailed St James’s Place and Quilter for net flows in the period following the Woodford Equity Income suspension.
The D2C investment platform faced net new business of just £2.31bn with Q4 2019 flows in particular taking a hit, coming in at £600m which was below consensus expectations of £1.3bn.
As a percentage of AUM the Q4 2019 figures represented just 0.6%. This figure had ranged from 1.3% to 3.4% in the previous four quarters.
JP Morgan pointed out the “significant slowdown” in flows were weaker than Quilter and SJP, “both of which trade at significantly lower multiples”. Hargreaves was trading at a price to earnings ratio of circa 40x, the analyst note said.
SJP saw net flows of £2.4bn in Q4 2019 representing 3.7% of assets under management, its results said.
Woodford fee waiver hits revenues
In contrast to flows, the D2C platform’s assets, revenues and profits were all up, in line with consensus.
AUM increased 22% over 2019 from £85.9bn to £105.2bn at December 2019.
Revenues increased 9% from £236.4m to £257.9m, despite the waiver of £2.3m worth of fees on Woodford funds, and profits before tax rose 12% from £153.4m to £171.1m.
Its share of the D2C platform market also increased from 40.5% to 41.8%.
Furthermore it noted a pick-up in activity in January 2020.
Hargreaves chief executive Chris Hill (pictured) blamed Brexit, political uncertainty and the US trade war for hitting client confidence and retail fund flows. “The suspension of the two Woodford funds also contributed to the general unease,” said Hill without reference to Hargreaves Lansdown’s championing of the fund.
He said the platform’s purpose “remains to empower people to save and invest with confidence”.
Hargreaves signals shake-up for Wealth 50
In a section outlining the firm’s values and culture, Hill described the Woodford fund suspensions as “disappointing and frustrating for us and our clients” and said “learnings have been incorporated into developments to our service”.
The platform would be making changes to the Wealth 50 in light of the Woodford Equity Income fund suspension after speaking with clients and getting independent insights, Hill said. “This will include adding more detail, greater transparency and a new structure to our research notes, for those clients who want a deeper level of information, and new functionality on our platform to help those who want to follow a more independent path.”
The results detailed how a dedicated help desk was established for Woodford Equity Income investors and clients in all Woodford funds, whether held directly or via the Hargreaves Lansdown multi-manager funds. These clients have been contacted 18 times with updates since the initial suspension in June 2019.
Unit trust manager appointment
Hargreaves touted the appointment of John Troiano, former global head of distribution at Schroders, as a non-executive director on its unit trust manager stating they would provide “independent challenge and oversight”.
But Troiano appears to be one of the non-executive directors required of fund boards under Financial Conduct Authority changes that came into effect on 30 September. Troiano is also on the board of Hargreaves Lansdown PLC.
Portfolio Adviser is awaiting a response from Hargreaves about whether it has appointed a second non-executive director to its fund board in line with FCA requirements.
