Hargreaves Lansdown PLC (LON: HL.)

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

On 15 October 2021, HL. will conduct the Annual General Meeting.

Recent trend of Dividend Payments

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

The chart above demonstrates the consistent dividend payment done by HL. from FY16 to FY20. In FY2021, HL. would pay a final dividend of GBX 38.50 per share and a special dividend of 12.00 pence per share, totalling around GBX 50.50 per share. It would be paid on 20 October 2021 and has an ex-dividend date of 23 September 2021.

The Company maintains a progressive ordinary dividend policy. It considers dividends on a total basis, targeting a payout ratio at around 65% across the market cycle and return excess cash to shareholders in the form of a special dividend.

Growth Prospects

• Market Leadership: The Company's addressable market is estimated at £3.0 trillion. HL. operates in the Direct-to-Consumer (D2C) U.K. platform with a 42.9% share in the market worth £289 billion. The market is going through a structural change where amid market uncertainties, clients are seeking guidance rather than investing by themselves to earn higher returns on their investments
• High Retention Rate: The Company's business model provides a lifetime of support services. In FY21, HL. has taken several steps to provide better services to its clients, such as using data analytics to improve tailored content and create a more engaging experience for new and existing clients. The Company also enhanced the functionality of the mobile app, including Active Savings balances. Currently, the client's retention rate stands at 92.10% at the end of FY21.
• Strong I.T. Infrastructure: The Company owns and develops its I.T. infrastructure, which provides leverage above its competitor to provide more user-friendly and unique services. As a result, the digital visits to its website and apps increased from 249 million in FY20 to 292 million in FY21.
• Strong Client Engagement: The Company had a record year adding 233,000 net new clients across all ranges and demographics. The effective marketing and advertising in H2FY21, including the brand awareness campaign, was the success driver in FY21.

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.
• High Market Volatility: Any sudden volatility in the market could affect a company's return and performance.
• Regulatory Risk: If the Company fails to implement regulations, it could lead to increased regulatory scrutiny, enforcement action, censure, or fines.
• Cyber Risk: The heavy dependence on technology to analyse and save data exposes it to data breaches and cyber-attacks.
  

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

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

(Source: LSE Website)

• Despite market volatility, the total revenue of the Company increased by 15% on YoY basis.
• The demand for digital services soared with 393 million digital visits and 98% of trades being done online.
• In FY21, 83% of the new clients were under 55, showing an interest in investing and saving, prioritising financial resilience.
• The AUA of the Company increased by 30% to £135.5 billion, mainly due to high-quality services and product offering.
• The Company expects the U.K. addressable wealth market to grow from £1.4 trillion in 2021 to £1.8 trillion by 2025, with the Direct Platform Market making up almost a quarter (23%) of this future pool.

Financial Ratios (H2FY21)

 Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 13 September, at 7:10 AM GMT, HL.'s shares were trading at GBX 1,456.00, up by 0.55% against the previous day closing price. Stock 52-week High and Low were GBX 1,796.00 and GBX 1,323.00, respectively.

On a daily chart, HL.'s price is sustaining between the middle and lower Bollinger bands. Hence, there could be an uptick in the stock price in the near term. Moreover, the 14-days RSI of ~35.20 is inching towards the oversold territory, reflecting an upside momentum in the stock price.

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

Business Outlook Scenario

HL. delivered a resilient performance in FY21, with a 15% growth in revenue. The Company reported record growth of 30% in AUA to £135.5 billion. The Company maintained a high retention ratio of 92.10% and added 45,000 new customers. The revenue from the new business of £8.7 billion shows Company's product demand and service quality. The digital visits to its website and apps increased from 249 million in FY20 to 292 million in FY21, showing demand in the market. The Company expects the U.K. addressable wealth market to grow from £1.4 trillion in FY21 to £1.8 trillion by FY25, with the Direct Platform Market making up almost a quarter (23%) of this future pool, and the Company's market leadership will provide a decent opportunity for growth in the future.

Considering the Company’s market leadership, increase in interest by the younger generation, solid growth in AUA, increase in customer base, 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 1,456.00 (as on 13 September 2021 at 7:10 AM GMT), with lower-double digit upside potential based on 32.73x Price/NTM Earnings (approx.) on FY22E earnings 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.

---

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.