Hargreaves Lansdown PLC

Hargreaves Lansdown PLC (LON: HL.) is a British entity that provides financial services related to pension, savings, and investment. The Company is listed on the FTSE 100 index.

On 15 October 2021, HL expects to hold its annual general meeting.

 Investment Highlights – BUY at GBX 1,392.00

• With net new business of £8.7 billion in FY21, Assets Under Administration (AuM) grew by 30% to £135.5 billion.
• The wealth market shall continue to broaden and digitize, while the Company is well-positioned to take advantage of the online trend being the market-leading digital wealth management service provider.
• The UK addressable market is likely to grow from £1.4 trillion in 2021 to £1.8 trillion by 2025, which shall create sizeable opportunities for the Company.
• From a technical standpoint, 14-day RSI (~30.08) is close to an oversold position, while the stock price is hovering around the lower Bollinger Band.
• In terms of valuation metrics on forward 12-month basis - EV/Sales, and Price/Cash Flow multiples reflected undervalued position against the Investment Banking & Investment Services industry.

Key Risks

• The likelihood of China Evergrande’s debt default risk poses a systematic risk to the financial markets.
• The structural changes imposed by the Covid-19 pandemic has significantly changed the consumers’ behaviour.

Financial Highlights (for the year ended 30 June 2021, as on 09 August 2021)

 (Source: Company Website)

• During FY21, Hargreaves Lansdown reported exceptional growth and demonstrated scalability, resilience, and diversity.
• The total clients reached to 1.645 million and assets stood at £135.5 billion, following the addition of £8.7 billion of net new business and addition of 233,000 net new clients in FY21.
• The underlying profit before tax increased by 8% year-on-year to £366.0 million in FY21.
• The total dividend for FY21 decreased by 8% year-on-year to 50.5 pence per share.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (FY22) (Illustrative)

Conclusion

The Covid-19 pandemic has accelerated two market trends - change in demographics and permanent shift to digital. Therefore, the demand for online business and younger clients has spurred, creating significant opportunities for the Company. Moreover, HL has enhanced its proposition with the broadening of its services and achieved record new client numbers. Hence, the Company is well-positioned to tackle short-term challenges and deliver incremental value for its shareholders. The stock made a 52-week high and low of GBX 1,796.00 and GBX 1,323.00, respectively.

Based on the robust new business, strong underlying profitability, encouraging wealth market outlook, favourable industry trends, and valuation conducted above, we have given a “BUY” recommendation on Hargreaves Lansdown PLC at the current price of GBX 1,392.00 (as on 27 September 2021, 9:50 AM GMT+1), with lower double-digit upside potential based on 28.05x Price/NTM Cash Flow (approx.) on FY22E Cash Flow Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

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