Hargreaves Lansdown has hailed flat inflows at the start of its financial year as a “pleasing” result as the coronavirus and Brexit uncertainty shook investor confidence.
The D2C firm reported £800m worth of net new business in the three months to 30 September 2020, down from £1.7bn the year before. But after excluding £900m worth of back book transfers from JP Morgan and Baillie Gifford in Q1 2019, year-on-year flows were flat.
Combined with £2.1bn from market movements, this took assets under administration from £104bn at the start of July to £106.9bn at the end of September.
“This is a pleasing result given the period has seen weakening investor sentiment arising from Covid-19 and the re-emergence of Brexit uncertainty,” said Hargreaves chief executive Chris Hill (pictured).
Sluggish net new business raises concerns
Hargreaves’ Q1 figures were better than expected with analysts predicting AUA of £105bn and revenues of £131m, around 10% weaker than the platform group’s actual turnover of £143.7m.
But investment bank Citi noted Hargreaves’ sluggish net new business growth “takes some of the shine off these results” and could impact its “already-high valuation multiple”.
“Flows are seen as the most recurring source of growth and so typically attract higher multiples hence Hargreaves’ currently high P/E multiple of 33x,” it said in an analyst note.
Hargreaves’ net flows of £800m were well below the £1.4bn that was expected, Citi pointed out, while growth in assets and revenue was driven by strong markets and a higher volume of “low quality” share transactions.
In addition to weaker net new business, Citi said it was also concerned Hargreaves’ expected declining profitability in FY21 off the back of lower cash and share revenues and slowing AUA growth would weigh on valuations.
“In that context we are cautious and have a sell rating,” the investment bank said. “We are constructive on Hargreaves’ growth outlook but see simply see risk-reward as too unfavourable at current valuation.”
Hargreaves said flows into its Active Savings cash business were hampered by the market leading rates on offer from the government-backed National Savings & Investments but had recently improved since NS&I cut its interest rates in mid-September.
Share dealing volumes averaged 980,000 deals per month during the quarter but were down on peak levels seen earlier this year.
Shares in the D2C firm were down 5% at £15.11 following the trading update.
