Hargreaves shunned by analysts as assets inch closer to £100bn

Platform’s valuation veers significantly from its five-year average

Sterling

Hargreaves Lansdown has failed to ease analysts’ concerns over its stretched valuation despite its assets under administration inching closer to £100bn than consensus forecasts in its latest trading update.

The D2C platform – a favourite of star fund manager Nick Train – reported record high AUA of £97.8bn for the period ended 30 April 2019, compared to the £95.1bn predicted by analysts, such as JP Morgan Cazenove and Citi.

Net new business for the four-month period published in Wednesday morning’s update was £2.9bn. That figure included £267m transferred from the Witan Investment Trust savings scheme with the remainder of assets due to be transferred by the financial year end on 30 June 2019.

Hargreaves said it would start the transfer process of similar savings scheme accounts from JP Morgan Asset Management and Baillie Gifford in the early months of the next financial year. 

Hargreaves said the period started slowly but built momentum, particularly across the tax year-end. The rebranded Wealth 50 list of funds, the HL Select Global Growth fund launch, which raised £298m, and the introduction of an Easy Access account in Active Savings helped to attract new clients and inflows.

Rising markets added £9bn to AUA.

HL valuation ‘does not feel justified’

Despite the above consensus update, analysts remain cautious about the investment platform’s stretched share price. Of the 15 analysts covering the stock, only one at Barclays is “overweight” whereas seven list the stock as a hold and a further seven list it as a sell, according to Bloomberg.

JP Morgan Cazenove said in an analyst note following the trading update that the current year price-to-earnings of 42x is significantly higher than the five-year average of 27x “which does not feel justified as the rate of net flows/AUM is slowing”. A lower PE multiple was warranted due to the rising proportion of revenues derived from share trading – which the team viewed as more cyclical – plus fee pressure. It has an underweight recommendation.

Citi, which is neutral on the stock, listed competition and higher cost disclosure among platforms as potential headwinds. The stock has rallied 25% in the year to date “reflective of its high quality platform and wider market rerating”, Citi said.

Peel Hunt noted the yield is now a “relatively modest” 2% and is putting its target price for the stock under review.

The platform is a favourite of Nick Train, who championed the explosive growth of the business in his January factsheet for the Finsbury Growth & Income Trust, where the holding accounts for 7.4% of the fund, according to FE Analytics. Lindsell Train increased its stake in the business to 11% from 10.3%, according to a regulatory filing published on 29 March 2019.

Peter Hargreaves is the largest shareholder with his 32% stake helping make him one of the wealthiest individuals in the UK investment industry. However, co-founder Stephen Lansdown has been selling down his stake cashing in £129m worth of stock over the last year.

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