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

• Changes to the Board: The appointment of Amy Stirling as a Chief Financial Officer effective 21 February 2022 will bring new perspectives to the business. Meanwhile, 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.
• Reasonable Business Opportunities in UK Markets: 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 of this future pool, and the Company's market leadership will provide a decent opportunity for growth in the future.
• Strong Digital Engagements: 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.

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.
• Sluggish UK Macroeconomic Indicators: The UK Composite PMI fell marginally to 53.4 in January 2022 from 53.6 in December 2021, while the UK consumer price inflation breached a nearly 30-year high of 5.4% in the 12 months to December 2021.
  

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 31 December 2021. 

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

(Source: LSE Website)

• Decent Growth in 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 24 January 2022, at 10:17 AM GMT, HL’s shares were trading at GBX 1,316.00, up by around 1.11% against the previous closing price. Stock 52-week High and Low were GBX 1,781.03 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 14-days RSI of ~39.79 approaches oversold territory, indicating a bullish price momentum. 

Valuation Methodology: Price/Book Approach (FY22E) (Illustrative) 

Business Outlook

Hargreaves 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, 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. However, the stock price may undergo sizeable corrections because of an UK inflation reaching a 30-years high in December 2021 and subdued business activities in UK during January 2022. Thus, it depends on the risk appetite of the clients to take a reasonable position in this Company having significant market opportunities.

Considering the potential opportunity into UK Markets, 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 1,316.00 (as on 24 January 2022 at 10:17 AM GMT), with lower-double digit upside potential based on 11.92x Price/NTM Book Value per share  (approx.) on FY22E book value per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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