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.

On 22 February 2022, Hargreaves Lansdown will announce its interim results for the six months ended 31 December 2021.

Investment Highlights – BUY at GBX 1,304.00

• 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.
• 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.
• Positive Technical Stance: From a technical standpoint, 14-day RSI (~40.18) is close to an oversold position, while the stock price is hovering around the lower Bollinger Band.
• Better Profitability: In FY21, operating margin and EBITDA margin were significantly higher than the industry median of 30% and 25%, respectively.

Key Risks

• Inflation Concern: Due to the inflationary pressure, the Bank of England increased the Bank Rate by 25 basis points to 0.50%. It can keep the equity market under pressure amid the rising US Dollar index.
• 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.

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

 (Source: Company 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.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings 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.

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. 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 1,283.00, 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 1,304.00 (as of 7 February 2022, at 8:30 AM GMT), with lower double-digit upside potential based on 28.47x Price/NTM Earnings (approx.) on FY22E Earnings 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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