It might be time to take some profits from Hargreaves Lansdown Plc (LON:HL.), suggested Credit Suisse, as the pensions and investing platform faces challenges of slowing fund flows and falling margins.
The Swiss bank initiated coverage of the diversified financial sector under new analyst on Tuesday, with an ‘underperform’ rating and 1,740p target price for HL.
HL fell short of its performance targets for fund flows, new clients and profit before tax in its 2019 financial year, and CS estimates underlying net fund flows slowed from £6.9bn in 2017 to £6.6bn and £6.1bn in the two year since.
“We think momentum is starting to look challenging for this 40% market share, 65% EBITDA margin, retail-facing business,” new analyst Haley Tam said in a note to clients.
While cash margins should stay high, they are expected to fall through the year and return to lower levels next year, with CS’s 2020-22 earnings per share forecasts 6-13% below consensus expectations.
At around 35 times forecast EPS, the premium valuation is “difficult to support in the face of near-term headwinds”, Tam said.
HL shares fell more than 4% to 1,991.5p on Tuesday.
Concerns about Ashmore and Jupiter
The emerging market fund manager faces weak emerging market investor sentiment and consensus earnings downgrades, while concerns for Jupiter are around fund flows and the trajectory of fee margin trends.
Ashmore shares fell 1% to 500.75p, while Jupiter orbited almost 3% lower to 345.6p.
LSE deal a "step-change"
The Credit Suisse analyst preferred the look of London Stock Exchange (LON:LSE), given an ‘outperform’ rating and 8,340p target price, and Man Group, which received the same rating and target price of 196p.
On the LSE, Tam said: “We believe the LSE-Refinitiv deal offers a step-change in scale and business mix for the LSE, alongside opportunities for revenue and cost synergies from the combination”
On a Blue Sky scenario where LSE achieves the top end of target revenue growth post-acquisition, the upside for the shares could top 25%.
On Man, the hedge fund manager’s technology-empowered alternative strategies are “difficult to replicate, more resilient to fee margin pressure and potentially earnings-accretive via performance fees”, and the company is Credit Suisse’s top pick within the European asset management sector.
Investors were not so sure about this one, with the shares going down 1% to 7,250p on Tuesday, while Man was down 2% to 171.85p.
Staberdeen dropped 1% to 283p and Schroders fell 2% to 3,007p.