Hargreaves Lansdown Plc

Hargreaves Lansdown Plc (LON: HL) is an Investment and Savings Platform offering services to over 1.3 million clients. It helps the clients in making informed investment decision by providing a tool and information.

Investment Highlights - Hargreaves Lansdown Plc – Avoid at GBX 1,560.50

• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Earnings multiples of the Hargreaves Lansdown Plc are currently higher as compared to the corresponding multiples of the Investment Banking & Investment Services industry, reflecting overstretched valuations.
• In the last one year, the Company delivered a negative return of ~ 10.34% and delivered significantly lower returns compared to the benchmark Index (FTSE-100 Index).
• From the technical standpoint, shares were trading below the short-term support level of 20-day (1,591.58) simple moving average prices, which reflects a downtrend in the stock and can decline further.

Key Risks

• The Company has been facing a challenging market condition from the perspective of governments, investors, competition, and volatile stock markets.
• Moreover, the negative market movements due to the Covid-19 disruption has been impacting the value of assets under administration.

Update on Trading Performance (released on 8 October 2020)

• In the first quarter of the financial year 2021, the Company made a good start with growth in revenue, assets and clients.
• The Company’s net new business stood at £0.8 billion with 31,000 net new clients for the period.
• Hargreaves Lansdown’s revenue surged by 12% to £143.7 million in Q1 FY2021, and AUA (Assets under administration) increased by 3% to £106.9 billion.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Conclusion

The Company has shown a good start of the financial year 2021, with increased revenue, clients and assets. The Company has a resilient client proposition and business model. Despite the resilient business performance, Hargreaves Lansdown operates in volatile market conditions. The Company is confident toward its strategy and is focused on the needs of savers and investors based out of the UK to deliver the highest level of client service. HL is well-positioned to deliver attractive growth for the long-term. The stock made a 52-week low and high of GBX 1,134.65 and GBX 2,162.46, respectively.

Based on the factors as highlighted above, we have given an “Avoid” stance on Hargreaves Lansdown Plc at the current price of GBX 1,560.50 (as on 8 October 2020, before the market close at 8:05 AM GMT+1), with support from few catalysts needs to be evaluated at a later stage such benefits from new clients and improved service.

Easyjet Plc

Easyjet Plc (LON: EZJ) is an FTSE 250 listed low-cost European point-to-point Airline Company. The Company has four geographic segments, which include the United Kingdom, Southern Europe, Northern Europe and Other.

Investment Highlights - Easyjet Plc – Avoid at GBX 537.12

• As per valuation metrics, Price/Cash flow multiple of the Easyjet Plc is currently higher as compared to the corresponding multiples of the Passenger Transportation Services industry, reflecting overstretched valuation.
• In the last six months and one year, the Company delivered a negative return of ~ 21.08% and ~ 51.46%, respectively, and delivered significantly lower returns compared to the benchmark Index (FTSE-250 Index).
• From the technical standpoint, 14-day RSI is currently supporting downward movement (around 56 level), which means the stock price could decline in the short term.

Key Risks

• The prolonged travel restrictions and battered passenger demand can widen the losses and put liquidity at significant risk.
• Moreover, the failure in cybersecurity and a critical data breach could hamper the operations as well as the reputation of the Company.

Recent News

On 7 October 2020, easyJet announced that its director non-executive and Remuneration Committee’s Chair, Moya Greene DBE, has informed the board that she will not be standing for re-election at the next AGM.

Trading Update (released on 8 October 2020)

(Source: Company Website)

• In the fourth quarter of the financial year 2020, the Company carried over 9 million customers, with enhanced biosecurity measures.
• The Company achieved punctuality of 94% in Q4 FY2020, led to high customer satisfaction.
• EZJ operated a disciplined flying programme during the summer and has launched a major restructuring programme. The Company is focused on cash generative flying to minimise cash burn and losses in H1 FY2021.
• The Company managed to raise cash of more than £2.4 billion since the beginning of pandemic and is well-positioned to tackle the challenging environment and capitalise on recovery.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

At the beginning of 2020, the entire aviation industry was significantly impacted by the outbreak of covid-19 pandemic. While the EZJ adapted quickly in accordance with challenging environment and taken actions to reduce cash burn, bolster liquidity, minimise losses and launched a major restructuring programme. The Company followed a conservative and prudent approach to capacity, which resulted in reduced cash burn in Q4 FY2020. The Company expect to fly at around 25% of planned capacity in the first quarter of the financial year 2021, based on current travel restrictions. The Company has the flexibility to ramp up capacity quickly to meet the improved demand. The stock made a 52-week low and high of GBX 410.00 and GBX 1,570.00, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on EasyJet Plc at the current price of GBX 537.12 (as on 8 October 2020, before the market close at 8:05 AM GMT+1), and we will watch out at the turnaround or improvement initiatives to be taken in the near term. 

 

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

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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