Woodford damage to Hargreaves splits analysts as new business falls

D2C giant set to waive £2.2m in fees if Equity Income reopens in December



Neil Woodford’s suspended equity income fund has had a minimal impact on Hargreaves Lansdown’s bottom line but analysts are at loggerheads over what effect the scandal will have on the platform’s ability to attract new business moving forward.

For the year ended 30 June 2019, net new business flows fell by 4% to £7.3bn from £7.6bn the year before.

Despite the dip in net new business, Hargreaves took in 7% higher revenue of £480.5m, £206.2m of which was from fees on funds sold on its platform. Profits also jumped from £292.4m a year ago to £305.8m. Assets under administration for the year ended 30 June 2019 surged 8% to a “record” £99.3bn.

The increased sales came despite the fact the D2C firm axed its 0.45% platform fee on Woodford Equity Income days after the fund was suspended.

Addressing the elephant in the room Hargreaves CEO Chris Hill (pictured) said the firm was “determined to learn” from the Woodford saga and reiterated that he and CFO Philip Johnson would not be taking bonuses.

“I have apologised to all clients who have been impacted by the recent problems because we all share their disappointment and frustration,” said Hill. “In these difficult times we recognise the financial and personal impact the gating of the fund has had on them. Philip and I, together with the unanimous support of the Board, have therefore decided that we will not take a bonus award for 2019.”

They were joined in waiving their bonuses by Hargreaves research director Mark Dampier, who had been one of Woodford’s most enthusiastic cheerleaders, and CIO Lee Gardhouse. Dampier and Gardhouse were put on blast for cashing in on £6.1m of Hargreaves shares weeks before the price plunged after Woodford’s equity income fund was suspended.

The company’s ties to Woodford did not prevent another 133,000 clients from hopping on board, bringing the total number of active users on Hargreaves platform up to 1,224,000.

Analysts clash over Hargreaves

Some analysts are still predicting that Hargreaves’ championing of the stricken UK equities manager could squeeze flows further down the line.

In an analyst note on Thursday JP Morgan Cazenove maintained its cuts to inflow estimates across the next three years from a total of £23.5bn to £16.5bn, a 30% reduction. In early July it predicted net flows for FY19, FY20 and FY 21 of £6.0bn, £5.0bn and £5.5bn, revised down from earlier estimates of £6.6bn, £7.9bn and £9bn.

Citi agreed that Hargreaves’ ties to Woodford could weigh on the company’s share price in the next few years.

“Results broadly in line, but we expect that the overhang in share prices from the impact on Woodford Equity Income fund will continue in the near term,” it said.

But Peel Hunt analyst Stuart Duncan took a more positive view on the D2C group’s prospects, noting “flows have held up well” after the negative publicity from Woodford and challenging markets.

“HL has delivered a solid result despite the weaker market conditions that prevailed for much of the year. The business remains in a strong position and we do not believe there will be a material impact from recent events. We upgrade our target price to 2,000p and our recommendation to Add.”

Other investors won’t give a jot about Woodford

“I’m not at all surprised,” said Fundscape CEO Bella Caridade-Ferreira. “A relatively small percentage of customers were invested in the [Woodford Equity Income] fund. Its other investors won’t give a jot and Hargreaves will do what it takes to resolve any problems with Woodford investors.”

Hargreaves Lansdown revealed in the aftermath of the Woodford fund suspension that 24% of clients were exposed to the fund with 133,769 clients are trapped in the suspended fund.

Seven Investment Management’s Peter Sleep said that given the Woodford suspension only covered one sixth of the reporting period it was never going to take a huge chunk out of revenues.

Hargreaves worked out that waiving the platform fee for customers directly invested in Woodford’s fund has cost it an estimated £360,000 per month. By those calculations it will have lost £2.2m in revenue by the time the fund reopens this Christmas.

Hargreaves warns of ‘subdued’ multi-manager flows

Sleep said the real impact of the Woodford saga will be on Hargreaves’ 10 multi-manager funds, six of which had exposure to Woodford Equity Income. Hargreaves Multi-Manager funds are the highest cost products in its stable, charging 75bps per annum.

The FTSE 100 platform admitted that recent growth in its multi-manager range had been “subdued” and warned this was “likely to remain a feature of 2020 flows” due to the holdings in Woodford Equity Income.

But a hit to its multi-manager funds could be offset by new income streams including Hargreaves’ cash business which it has so far been successful in developing, Sleep added.

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