Hargreaves Lansdown PLC

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.

Investment Highlights – BUY at GBX 1,027.70

• Promising Guidance: By FY26, HL expects to improve operating margins from the low 50s in FY23 to over 55%.
• Attractive Dividends: The Board has declared an interim dividend per share of 12.26 pence, reflecting a 3% jump from the previous year.
• Board Change: The appointment of Amy Stirling as a Chief Financial Officer shall bring new perspectives to the business.
• Positive Technical Stance: From a technical standpoint, 14-day RSI (~18.55) is close to an oversold position, while the stock price has gone below the lower Bollinger Band.
• Better Profitability: In FY21, operating margin and EBITDA margin were significantly higher than the industry median of 35.0% and 37.5%, respectively.

Key Risks

• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Business Risk: The moderation in trading activity and client acquisitions can impact the Company’s growth trajectory.

Interim Results (for the six months ended 31 December 2021, as on 22 February 2022)

 (Source: Company Website)

• AuA Growth: The Asset under Administration (AuA) grew 17% since 31 December 2020 to £141.2 billion. Moreover, the Company added the net new business of £2.3 billion in H1 FY22.
• Increase in Clients: During H1 FY22, there was an increase of 48,000 to 1,693,000 active clients since 30 June 2021.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

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

*Peers: London Stock Exchange Group PLC, IntegraFin Holdings plc, and Bridgepoint Group PLC.

*All selected peers are LSE-listed Companies from the Financials sector.  

Conclusion

Hargreaves has shown a decline in top-line and bottom-line during H1 FY22; however, the increase in dividends, investments, client numbers, and assets under administration underpins bright outlook prospects. 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. 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 1,778.00 and GBX 1,010.00, respectively.

Based on the robust new business, strong underlying profitability, encouraging wealth market outlook, favorable industry trends, and valuation conducted above, we have given a “BUY” recommendation on Hargreaves Lansdown PLC at the current price of GBX 1,027.70 (as of 22 February 2022, at 9:05 AM GMT), with lower double-digit upside potential based on 21.95x Price/NTM Cash Flow (approx.) on FY22E Cash Flow 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.

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