Hargreaves Lansdown PLC (LON: HL.)

Hargreaves Lansdown PLC (LON: HL.) is an FTSE 100 index listed United Kingdom-based company. It provides direct to investor investment service to investors from a range of investments, including funds, Equities, ETFs, investment trusts, bonds, and gilts. Moreover, the diverse range of services includes individual savings accounts, pensions, investment ideas, advanced investing, cash savings, and financial advice.

Recent trend of Dividend Payments

The Company maintains a progressive ordinary dividend policy and distributes excess cash to shareholders in the form of a special dividend. HL. had paid a final dividend of 38.50 pence per share and a special dividend of 12.00 pence per share, totalling around 50.50 pence per share, on 20 October 2021, with an ex-dividend date of 23 September 2021.

(Data Source: LSE Website, Research done by Kalkine Group)

Growth Prospects

• Sizeable Opportunity: The Company's UK addressable wealth market is expected to grow from £1.4 trillion in 2021 to £1.8 trillion by 2025, providing increased market opportunities. Meanwhile, the Direct Platform Market represents almost a quarter (23%) of this future pool.
• Robust Client Engagement: The Company had made significant investments towards the expansion of the client’s base and enhance the helpdesk support. As a result, the digital visits to its website and apps increased from 249 million in FY20 to 393 million in FY21. Meanwhile, these encouraging levels of engagement led to a record 26.9 million transactions.
• Board Changes: The appointment of Amy Stirling as a Chief Financial Officer effective 21 February 2022 will bring new perspectives to the business. She has 20 years of strategic financial management and brand experience across a range of sectors.

Key Risks 

• Poor Business Strategy: If the Company fails to align the activity with its objectives, it could lead to a decline in AUA, poor performance in the market and reputational loss.
• Interest Rate Hike: The recent interest rate hike of 0.15% to curb inflation may keep investors’ away from UK Equities.
• UK Services PMI: The UK Services PMI fell sharply to 53.2 in December 2021 from 58.5 in November 2021.
• Covid-19 Pandemic: The daily COVID cases in the UK surged to a record 90,418 (18 December 2021), which may result in increased restrictions over the period.

Now we will analyse some key fundamental and shareholders statistics of Hargreaves Lansdown PLC. 

Hargreaves (Peter Kendal) is the most significant shareholder as it holds nearly 93.84 million shares as of 30 September 2021. 

Q1 FY22 Trading Update (for the three months ended 30 September 2021 as of 15 October 2021)

(Source: LSE Website)

• Top-Line Business: The total revenue witnessed a marginal decline of 1% to £142.2 million during Q1 FY22.
• AuA: The Assets under administration ("AUA") stood at £138.0 billion as of 30 September 2021, up 2% since 30 June 2021.
• Share Dealing Volumes: The share dealing volumes averaged 861,000 deals per month during Q1 FY22 when compared with 980,000 in the quarter last year. It is equivalent to 40,000 deals per day, in line with the guidance.

FY21 Financial and Operational Highlights (for the twelve months ended 30 June 2021 as of 9 August 2021)

(Source: LSE Website)

• Top-Line Business: Despite market volatility, the total revenue of the Company increased by around 15% on a YoY basis.
• Digitalization: The demand for digital services soared with 393 million digital visits and 98% of trades being done online.
• Asset under Administration: The AUA of the Company increased by 30% to £135.5 billion, mainly due to high-quality services and product offerings.
  

Financial Ratios (FY21)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 20 December 2021, at 08:18 AM GMT, HL’s shares were trading at GBX 1,322.50, down by around 1.96% against the previous closing price. Stock 52-week High and Low were GBX 1,796.00 and GBX 1,291.50, respectively.

On a daily chart, the share price is hovering around the lower Bollinger band, indicating the possibility of an upward movement. Moreover, the MACD remained above the signal line, indicating an upside potential in the stock price. The 14-days RSI of ~38.86 approaches oversold territory, indicating a bullish price momentum. 

Valuation Methodology: Price/Book Approach (NTM) (Illustrative)

Business Outlook

HL. delivered a resilient performance in FY21 and carried the same momentum into Q1 FY22. The Company maintained a high retention ratio of 92.10% and added 45,000 new customers. Moreover, HL’s resilient business model resulted in a record 233,000 net new clients and £8.7 billion of net new business during FY21, taking total clients to 1.645 million and assets to £135.5 billion. The appointment of a new Chief Information Officer, Chief Technology Officer and a new Chief Financial Officer would strengthen the board to achieve the next phase of the digital transformation. However, the stock price may undergo sizeable corrections because of a surprise increase in the interest rates by the Bank of England and a record Covid-19 cases in the UK. Thus, it depends on the risk appetite of the clients to take a reasonable position in this Company having significant market opportunities.

Considering the Company’s market leadership, strong client’s engagement, solid growth in AUA, decent top-line business, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Hargreaves Lansdown PLC at the current price of GBX 1,322.50 (as on 20 December 2021 at 8:18 AM GMT), with lower-double digit upside potential based on 11.77x Price/NTM Book Value per share  (approx.) on FY22E book value per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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