Nick Train has said he is reminded of why he owns Hargreaves Lansdown following its platform outages amid one of the busiest trading days on record because the problems signal the sheer number of people that use the financial services company.
Last Monday, outages on the D2C firm’s website and app caused millions to miss out on the market rally following Joe Biden’s presidential win and positive Covid vaccine news from Pfizer/BioNTech.
Dissatisfied users reported being locked out of their accounts or unable to execute trades, while some investors found their accounts thousands of pounds in debt due to a technical glitch duplicating trades made on the platform.
Hargreaves shares have fallen by 4.9% to £14.90 since last Monday’s trading mishap. Over the last year, shares have slipped 18% from the reputational fallout from the Woodford saga, which Train had previously described as a “regrettable” turn of events for Hargreaves.
Trading fiasco evidence of Hargreaves’ ‘explosive’ digital growth
In a virtual Finsbury Growth & Income trust briefing on Thursday morning, Train admitted that “Hargreaves’ capacity creaked” during the episode as volumes across the platform went up tenfold.
While he said he understood customers’ frustrations at the technical glitches, as an investor he said the sheer number of people trying to trade via Hargreaves on the day reminded him why he owns the stock.
“Obviously, it’s not good when your customers can’t transact,” he said. “On the other hand, to us, it’s part and parcel of something that we’ve been watching with this company.
“In its financial year to June 2019 Hargreaves received 1.7 million transactions on its platform delivered by a mobile device. Now, in its financial year to June 2020 that 1.7 million transactions by a mobile device has turned into 4.2. million transactions. In other words, an explosive growth of interaction between the platform and its customers via a digital device.”
This “explosive” growth in digital transactions is fuelling Hargreaves’ overall revenue growth, which Train pointed out was in the double digits for 2020.
Train’s boutique Lindsell Train is Hargreaves’ largest shareholder, owning 13% of the business, having loaded up on more shares during the coronavirus sell-off. His £1.9bn Finsbury Growth & Income trust holds a 6.0% weighting to the stock.
See also: Nick Train tackles ‘painful’ AGM question on potential Hargreaves conflict
Hargreaves can become the next Charles Schwab
Train also compared Hargreaves to US platform behemoth Charles Schwab, which oversees $6trn in assets.
But unlike Hargreaves Lansdown, which charges 0.45% on investors’ first £250,000, Charles Schwab is known as a low cost platform.
Train thinks Hargreaves will face greater fee pressure over time as its business matures and more competitors pop up in the UK.
“The issue for Hargreaves and for an investor in Hargreaves is, can the structural growth that’s available to this business compensate for I think what will doubtless be a gradual decline in its fee rate and, probably associated with that, a gradual decline in the way that the business is valued by investors?
“Now, we own it and obviously therefore my answer is, yes, we think that the potential for the company to grow from £100bn sterling assets is a very real opportunity. And that opportunity is more than enough in our minds to offset the inevitable gradual decline in the fees.”
Despite Covid and Brexit dampening investor sentiment Hargreaves’ AUM hit £106.9bn at the end of September. However analysts have recently struck a more cautious tone around its slowing net new business and high valuation multiple.
