Hargreaves Lansdown PLC (LON:HL.) cut costs to boost half-year profits as revenues rose less than the market expected as it battled “reputational damage” from its close associations with fallen star fund manager Neil Woodford.
Around 15,000 net new clients signed up in second quarter to 31 December, taking the active client base up 4% to 1.27mln, while the client retention rate of 93.3% was little changed over the six months since the end of June.
This was only down slightly compared to previous periods, but shares in the FTSE 100-listed company fell 6% to 1,742.24p by mid morning on Friday.
There has been strong criticism of Hargreaves since last summer as it had continued to include Woodford's flagship fund among its recommended Wealth 50 'buy list' right up until the fund was suspended on 3 June after many months of poor performance led to a surge in withdrawals.
Analysts noted that, excluding its Active Savings service, net inflows were just £0.3bn in the second quarter, though assets under management were boosted by positive market movements of £2.8bn.
Excluding £1.6bn in Active Savings, HL finished December with total assets under administration of £103.6bn, up 3.1% since the end of September and 22% over the year.
Total net new business of £2.3bn in half was weaker than anticipated, which was attributed to this uncertainty, though chief executive Chris Hill noted that since the election an “increase in investor confidence” has been witnessed, which has translated into increased client activity and “early signs of renewed net flows into retail funds”.
Net revenue for the half year of £257.9mln was up 9% compared to the previous year but a little short of analyst forecasts for £259.7mln.
But keeping costs under control meant this fed through to adjusted profit before tax of £171.1mln that was up 12% on the prior year and beat the consensus estimate of £168.7mln.
Add in a slightly lower tax rate, and the FTSE 100-listed investment platform’s diluted earnings per share were up 12% year-on-year to 29.3p, 2% ahead of the average analyst forecast.
“Despite market challenges, the resilience of our business, continued execution of our strategy and our focus on ensuring the right outcomes for clients, means we have seen growth and increased market share through the period,” said Hill.
As the board declared an interim dividend of 11.2p, up 9% year on year.
Broker Libuerm said net new business “is probably the metric that the bears will focus on today” and the net new client numbers since the Woodford suspension was “pretty respectable given the risk of reputational damage”.
“With respect to Woodford there isn't much in the statement but expect it to be the focus of questions in today's presentation alongside the potential path of recovery for new flows post the election.”
Analysts at Shore Capital noted that the company “continues to attract negative press for its role in the Woodford debacle.
“While this will have undoubtedly alienated some customers, we think management actions, such as immediately suspending its own platform fees on these holdings at a cost of £2.3mln (and lobbying, in vain, for Woodford to do the same on management fees) and by forgoing of director bonuses, will have helped to mitigate the reputational damage.”