News Column

UPDATE: Hargreaves Lansdown Buoyed By Market But Faces Margin Concern

September 3, 2014

Samuel Agini



LONDON (Alliance News) - Hargreaves Lansdown PLC Wednesday reported a 7.5% rise in full year pretax profit, boosted by growing client numbers and assets under administration, as the investment supermarket was helped by a busy year of London stock market activity.


Hargreaves Lansdown increased its full-year dividend 8.1% to 32.00 pence from 29.59p.


In a statement, Hargreaves Lansdown said it made a GBP209.8 million pretax profit in the year ended June 30, compared with GBP195.2 million in the corresponding period last year. Revenue increased to GBP358.4 million from GBP292.4 million, due to growth in complementary services such as stockbroking, fund management, discretionary management and pension drawdown services, the company said.


Specific events to bolster performance included the flotation of Royal Mail PLC. The company said that around 118,000 people, approximately 18.5% of the UK public who invested in Royal Mail shares, did so through Hargreaves Lansdown.


Hargreaves Lansdown said it also benefited from the float of TSB Banking Group PLC by Lloyds Banking Group PLC, and the launch of fund manager Neil Woodford's new fund.


Commission payable rose to GBP66.5 million from GBP23.2 million. Staff costs rose by 2% to GBP51.3 million, while other operating costs increased to GBP31.7 million from GBP27.0 million.


"Our clients have entrusted a further GBP6.4 billion to us such that we now administer GBP46.9 billion of assets. We have also welcomed 144,000 new clients during the year, with clients now totalling 652,000," Chief Executive Ian Gorham said in a statement. Market movement and other factors contributed GBP4.1 billion to assets under administration.


A year earlier, Hargreaves Lansdown's assets under administration amounted to GBP36.4 billion, while its net business inflows were GBP5.1 billion.


However, some analysts raised concerns over margin pressure at Hargreaves Lansdown in the wake of new UK rules, known as the Retail Distribution Review, aimed at making the investment industry's fee structures and payments more transparent.


Hargreaves Lansdown "has continued to demonstrate its prowess at harvesting assets, but the margin pressure, a result of RDR, is creating an environment that makes it difficult to deliver double-digit earnings per share growth," Liberum analysts said in a note reiterating a 'Sell' on the shares. Liberum has an 829 pence price target for the shares, which were Wednesday quoted down 4.5% at 1,086.80p.


"Group net income [revenue] of GBP291.9 million was up 8% year-on-year, equating to a net income margin of 0.70%, down from 0.86% in 2013 and 1.00% in 2010. We expect this to deteriorate further, falling to 0.60% in 2016," Liberum added.


Hargreaves Lansdown's CEO said he was pleased to have delivered the changes required under the RDR, which he said engaged company resources and time for the best part of 18 months.


"We are pleased we have been able to deliver this change successfully and delivered lower costs of investing for the majority of our clients at the same time. We now look forward to seeking to maintain our success in our growing marketplace," Gorham said.


"Whilst regulatory intervention across the financial services industry shows no sign of reducing, with the RDR having been delivered successfully we are now able to re-deploy staff and resources on improving the business," the CEO added.


Commenting on the broader outlook for the market, Gorham also said there are signs of a return to stronger 'economic trading conditions', adding that greater capitalisation of banks has served to enhance stability across most markets. However, he said it remains to be seen whether this will translate into stronger stock markets.


"In particular, markets are likely to be influenced by the performance of Asian economies, particularly China, and markets generally remain subject to the influence of geopolitical events," Gorham said.







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Source: Alliance News


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