Hargreaves Lansdown PLC (LON:HL.) is expected to be the largest beneficiary of the fallout from the system migration problems at Barclays PLC (LON:BARC), according to analysts at Numis.
The financial services firm saw the number of active clients rise by 30,000 to 983,000 in the first quarter, marking a 50% increase on the same period a year ago.
Hargreaves said it had “benefited from significant transfer activity relating to operational issues on a competitor platform”.
Analysts and media reports later said the competitor was most likely to be Barclays Stockbrokers, which has had problems with its stockbroking service.
Many Barclays clients have complained about having login-in problems and long waits after the bank moved 200,000 customers from its Stockbroker service to its new Smart Investors offering in August.
Barclays has also reported delays in paying dividends to some investors under the new service.
“We believe that HL will be the largest beneficiary of the fallout from the system migration problems at Barclays, which caused many problems for a large number of Barclays Stockbrokers' accounts,” Numis said.
“We would, however, caution that, as well as clients not being able to log into their accounts and not receiving their dividends, the exit process appears to be delayed as well.”
Hargreaves to report strong net flows and customer growth in second half, predicts Numis
Numis expects a lag between clients choosing to move to Hargreaves and the recognition of assets under management. The broker noted that if a client is transferring, Hargreaves will only recognise them when their balance is over £100.
“Consequently, if the transfer is delayed, client and AUA recognition could be delayed as well and for this reason we expect HL to report strong net flows and customer growth in the second quarter,” Numis said, reiterating an ‘add’ rating and target price of 1,497p.
In the first quarter, net new business increased 39% to £1.54bn against the £1.11bn reported last year. Assets under administration stood at £82bn on 30 September, up 4% since 30 June.
Net revenue increased 15% to £104.1mln for the quarter compared to the same period a year ago.
“We regard this as strong update in what is seasonally the quietest part of HL’s financial year,” said Shore Capital analyst Paul McGinnis.
“With new business traditionally skewed to HL’s H2 (which captures the ISA season and the end of the tax year), the net inflows represent 19.5% of our current Jun 2018 full year estimate of £7.9bn.”
McGinnis also believes the strong inflows may calm some nerves in relation to rival Vanguard, which launched its own direct to client (D2C) platform in April, attracting a reported £250mln in the first five months.
Hargreaves launch of cash management service to drive growth in AuA, says ShoreCap
On the company’s plans tackle the savings market with the launch of cash management service, Active Savings, McGinnis expects a launch around the end of the calendar year. Hargreaves provided no further update on its plans for the services in its first quarter results.
“We think this product could be a game-changer and drive high growth in AuA well into the medium term,” McGinnis said.
Shore Capital left its rating on Hargreaves at ‘buy’ with a 1,493p target price. The broker said it continues to believe the current share price underestimates the resilience of the firm’s business model and the premium that its client base is willing to pay for convenience.
“This factor will be further reinforced when Active Savings (the cash savings product), is launched around first quarter of 2018 and will allow HL clients to administer both their ‘risk’ savings (ISA/SIPP) and ‘non-risk’ savings (cash) via the same login.”