Hargreaves touts £1trn opportunity as flows shrivel

D2C platform’s trading update falls short of analyst expectations

Hargreaves

Hargreaves Lansdown has highlighted the opportunity to tap into over £1trn worth of assets in the private wealth market in an otherwise disappointing market update that unveiled weaker net flows and warned that lingering Brexit uncertainty could eat into future flows.

Net inflows at the platform business shrivelled by nearly a quarter in the first six months to 31 December 2018, falling from £3.3bn to £2.5bn year-on-year. These were below consensus expectations of net flows totalling £2.7bn.

New business was offset by £8.2bn of negative market movements, which brought total assets under administration down 6% from £91.6bn to £85.9bn.

Brexit impact on flows to continue

Echoing his comments from the firm’s annual trading update CEO Chris Hill (pictured) said that Brexit would continue to impact markets and consumer confidence until the shape of the UK’s divorce from the EU becomes clear.

Against this backdrop he noted the Investment Association reported the worst period for industry net retail outflows ever over the three months to November 2018. Hargreaves’ own in-house measure of investor sentiment in the UK, HL Investor Confidence Index, fell to its lowest point since the index was launched in 1995, he added.

The platform business’ cautious stance on Brexit has been at odds with the views expressed by the group’s billionaire founder Peter Hargreaves who has stated it would be preferable for the UK to leave the EU with no deal.

Although the second half of the financial year is traditionally stronger for new business, Hill predicted Brexit uncertainty would take some of the sheen out of the group’s next set of figures.

“Investor sentiment and stock market levels are usually key to the levels of new business, but this year has the added complication of Brexit,” he said. “Such uncertainty during our busiest time of year is clearly not helpful for predicting new flows and business volumes, but we will be prepared operationally to deal with any outcome. Our fundamental objective will be to ensure continuity of service and a seamless client experience throughout the Brexit process and, as ever, over the busy tax year-end.”

Hargreaves’ £1trn opportunity

Despite his cautionary tone, Hill said that Hargreaves has a significant opportunity to tap into over £1trn worth of assets in the private wealth market and up to £2.4 trillion when cash savings are also included.

Hargreaves has made moves to tap into the cash management space, rolling out its Active Savings service in December 2017.

“People need to take charge of their money and manage it over a longer period and yet savings and investments are becoming more complicated,” he explained. “Clients therefore need help and want solutions more than ever before. They want to feel valued and supported by their chosen financial service providers, particularly during these uncertain times. Our relentless client focus, combined with our scale, knowledge and expertise uniquely positions us to provide the solutions required and capitalise on this opportunity.”

However analysts at JP Morgan Cazenove still believe there is room for disappointment in Hargreaves’ share price which they say trades at a “significant premium to its long-run average”.

“While a successful rollout of new initiatives such as the cash offering could support the stock (and could, we estimate, add up to 11% to earnings in our mid-case scenario), we equally see risk of a potential de-rating as the stock now trades at a significant premium to its long-run average. We also believe that valuation does not reflect the regulatory uncertainty, including the possibility of incremental revenue pressure on cash earnings from the FCA platform review.”

Shares in the group were down close to 5% during trading on Tuesday at 1711p.

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