Hargreaves Lansdown’s championing of Woodford Equity Income could result in a £7bn hit to its inflows, according to JP Morgan Cazenove.
In a research note on asset gatherers, the European equities team revised down its inflows estimates across the next three years from a total of £23.5bn to £16.5bn, a 30% reduction.
“With investors in Woodford’s Equity Income fund still gated, and the relationship between Woodford funds and Hargreaves Lansdown under increased scrutiny, we have reduced our FY19/20/21E inflow estimates from £6.6bn/£7.9bn/£9bn to £6.0bn/£5.0bn/£5.5bn,” said the note, published on Monday morning.
The bank currently has an underweight rating on Hargreaves, which is trading 9% lower than its 2,228p share price the day Woodford Equity Income suspended. Nick Train, who was booted from the Wealth 50 last week, is among fund managers who have taken a hit from their holding in Hargreaves.
HL inflows estimates pre and post Woodford suspension
| Revised inflows estimate | Original estimate | Change (£) | Change (%) | |
| 2019 | £6bn | £6.6bn | £600m | 9% |
| 2020 | £5.bn | £7.9bn | £2.9bn | 37% |
| 2021 | £5.5bn | £9bn | £3.5bn | 39% |
Source: JP Morgan Cazenove
Lang Cat director Mike Barrett said the figures appeared to be “slightly on the pessimistic side” pointing to the fact 76% of Hargreaves customers have no exposure to Woodford Equity Income.
“Three quarters of million customers have no exposure to Woodford whatsoever,” Barrett said. “For those customers, the fundamentals of what Hargreaves do, in offering them a safe place to invest with exceptional service, none of that has been impacted at all.”
Around half of Hargreaves flows come from existing clients investing more assets, he said. AJ Bell and Interactive Investor were best placed to pick up business from dissatisfied Hargreaves’ clients, he added.
Hargreaves chief executive Chris Hill (pictured) confirmed to the Treasury select committee that 133,769 clients are trapped in the suspended fund and that additional clients have exposure via the platform’s multi-manager funds.
Positive markets to offset Woodford hit
Despite the significant hit to flows, positive market movements meant there would only be a marginal affect on earnings per share (EPS).
In 2019, Hargreaves assets are now estimated to rise £4.2bn thanks to markets compared to the £2.2bn previously predicted. The adjusted EPS is now estimated at 51.7p for 2019 up from 51.6p, albeit more bearish than the consensus of 52.1p.
JP Morgan Cazenove remains more bearish than consensus for its 2020 and 2021 estimates predicting adjusted EPS of 58.9p and 65.2p. That compares to the consensus of 58.7p for 2020 and 65.2p for 2021.
Hargreaves Lansdown’s cash offering, Active Savings, was a bright spot adding up to 10% to earnings in the bank’s mid-case scenario, while this could gain more momentum if UK interest rates rise significantly.
