News of investment platform Hargreaves Lansdown PLC (LSE:HL.) formally accepting a £5.4 billion private equity takeover offer has overshadowed what turned out to be better-than-expected full-year financial results.
Adjusted earnings per share of 71p and underlying profit before tax of £456 million beat the forecasts laid down by City brokers including Shore Capital markets and Jefferies.
The secret ingredient? Persistently high net interest margins.
Although total net interest income (i.e. the amount of money Hargreaves earns on cash held in customer accounts) fell to £260.7 million from £268.7 million in 2023, it came on an improved margin of 2.1% compared to 1.92% in 2023.
This implies that Hargreaves passed through less of the interest it earned on cash back to the customer in 2024.
High interest rates have been a cash bonanza for wealth platforms like Hargreaves.
For context, Hargreaves earned just £50 million on a 0.37% margin from its customers’ money in the June 2022 financial year, when interest rates remained at just 1%.
The full-year dividend per share of 43.2p was up 4% year on year, including a 30p final payout.
But, as Shore Cap stated, “All of this is rather academic” given the formalised takeover offer tabled by private equity outfits CVC, Nordic Capital and Platinum Ivy.
“We expect the deal to go through as (i) HL’s board has recommended it, (ii) we don’t get the sense that there is sufficient shareholder resistance to the proposal, and (iii) the indicative offer for the business of 1,140p per share incl. 30p of final DPS is in our view a great price for the buyer,” stated Shore Cap.
Hargreaves’ share price, which had largely priced in the 1,140p per share takeover bid, added another 2.2% to 1,105.5 on Friday.