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Hargreaves Lansdown slides as flows face weak investor sentiment

Assets under management of £101.8bn were up 3% in the three months to the end of September and 8% over the last year

Hargreaves Lansdown PLC - headquarters in Bristol

Hargreaves Lansdown PLC (LON:HL.) saw revenues grow slightly slower in the first quarter of its new trading year as new business was impacted by “weak investor sentiment”.   

Net revenue growth was up 6% to £128.1mln, down slightly from the 7% from the growth in the past full year but stronger than the £127.9mln analysts had forecast on average.

New business in the period was said to be “impacted by weak investor sentiment arising from continuing Brexit and political uncertainty in the UK and wider global macro issues such as trade tariffs”.

This implied there was little effect from the substantial negative press around the FTSE 100 company's close relationship with Neil Woodford, with 35,000 net new clients joining in the period versus 29,000 this time last year, despite this being the first whole quarter since the Woodford Equity Income fund was gated in early June.

AUM of £101.8bn was up 3% in the three months to the end of September and 8% over the last year.

Lower underlying flows

The increase in assets was from a £1.7bn influx of net new business and £0.8bn from market movements.

Excluding Active Savings, net inflows were £1.4bn, of which £0.9bn came from the direct back book transfers from JP Morgan and Baillie Gifford, leaving an underlying figure of around £0.5bn compared to £1.3bn in the same quarter last year.

Chief executive Chris Hill called it a “solid start” to the financial year but amid the uncertainty, HL was continuing to “deliberately moderate” investment in the business after two years of elevated spending on staff, marketing and technology. 

“Whilst we anticipate that costs will typically be aligned to client number growth, we are mindful of the external market environment, and hence remain watchful on costs despite the client and revenue growth experienced during the period.”

Shares slide

HL shares fell 4% on Thursday morning to 1,745p, extending the decline from May's all-time high at almost 2,450p.

Broker Peel Hunt said it was forecasting £342mln PBT and earnings per share of 58p for the year to June 2020, pretty much in line with consensus which stands at £341mln and 59p.

"Worth noting that there were 35,000 new clients in the period, higher than the comparative figure, indicating the strength of HL’s market position... Even given negative sentiment over last few months, still generating net inflows which shows the power of the business model."

With the Woodford EI fund suspended until at least December, analysts at Shore Capital said longer term implications of the Woodford affair on the HL brand "will become more apparent when the suspension is lifted but it would not appear that disgruntled clients have moved other investments off the HL platform to date".

ShoreCap added that the shares "seem to have over-corrected on no new news" and said, "we would also highlight that for those investors looking for domestic stocks that might see a substantial bounce on any kind of Brexit resolution, we would expect something high beta like HL to fit this description".

-- Adds share price and broker comment --

Quick facts: Hargreaves Lansdown PLC

Price: 1778 GBX

LSE:HL.
Market: LSE
Market Cap: £8.45 billion
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