Hargreaves Lansdown Group  

Hargreaves a 'buy' despite ‘short-term pain’: analyst

Hargreaves a 'buy' despite ‘short-term pain’: analyst
Charlie Bibby/FT

Hargreaves Lansdown is still a stock worth buying despite the fact its shares have fallen around 40 per cent over the past six months.

In a note today (May 6), analyst Peel Hunt said while “short-term pain” lay ahead for the FTSE100 company, longer term estimates looked promising.

The analyst was also quick to highlight Hargreaves was not the only listed platform to see its shares dip in recent months, suggesting its peer group average was down 39 per cent.

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A contributing factor to Hargreaves’ share price decline was its capital markets day in February, where it outlined its strategic plan which included a new advice proposition.

Despite the stock market’s jerk reaction to the plan, Peel Hunt said key details in the plan will be what causes Hargreaves’ flows to pick back up in future years following the current “challenging macro picture”.

The expected £55mn of annual cost savings by 2026 and return to positive operational leverage laid out in the plan “have been overlooked”, Peel Hunt also noted.

In 2021, AUM sat at £135.5bn. The analyst reckons this figure will only edge up by just half a billion by the end of this year, but that by the end of 2024, AUM will have jumped to £166.8bn.

By 2026, predictions put Hargreaves' flows at £17bn, £3bn shy of the £20bn it noted on capital markets day (February 22).

The recovery of flows, the analyst said, will be as a result of accelerating the growth of its Active Savings service and the development of its new advice proposition.

“The requirement for some sort of lower-cost advice proposition in the UK is clear, whether from existing or new clients, and we believe that Hargreaves is well placed to deliver this,” said Peel Hunt.

And despite the recent share price dip, estimates suggest the share price will rise again in the coming years.

Based on annualised forecasts, Hargreaves' stock is trading on a December 2022 price/earnings ratio of 18x, or 21x based on statutory profits.

But looking a few years out, Peel Hunt said the multiple based on 2026 estimates is just over 10x, based on around 90p of potential earnings. This suggests the platforms' stock is currently undervalued, but that it will realise projected value in years to come.

The price/earnings ratios have prompted the analyst to surmise Hargreaves is still a "buy", with an updated target price of 1,370p.

“To us, Hargreaves is set to remain a market leader in the broader wealth management sector and this has significant value. We remain at Buy on an updated target price of 1,370p,” said the analyst.

The platform’s headline goal is that net new business increases to £20bn by 2026, with 25 per cent coming from Active Savings, and 25 per cent from the new advice proposition after 2024.