Hargreaves Lansdown PLC’s (LON:HL.) strong third-quarter update and robust statement on maintaining the dividend was a significant move, analysts said.
Broker Peel Hunt upgraded its recommendation on the shares to ‘add’ from ‘neutral’, even as it cut its target price to 1,700p from 2,000p, with the shares little changed since the start of March but down close to 30% over the past 12 months.
READ: Hargreaves enjoys bumper ISA new business and dealing activity in March and April
With the FTSE 100-listed fund supermarket confirming that it expects to retain its existing dividend policy, Peel Hunt analyst Stuart Duncan said he expects to reduce his forecast for the full year by 5%, saying the consensus forecast of close to 53p, looks “too low”.
“For the following year, we believe the impact will be more significant.”
House broker Numis estimated that the total dividend this year will be up 19% to 50.1p.
Analysts at Barclays, noting that existing dividend intentions were reiterated, increased its earnings and dividend expectations 8% to 47.8p for this year and 7% to 38.8p for 2021.
"No clear impact from Woodford"
Revenue from HL for the four months of £190.2mln was well ahead of the consensus forecast of £168mln and brings the ten-month total £448.1mln, with strong revenue is heavily driven by increased dealing volumes by retail investors through the market volatility caused by Covid-19.
Barclays, which pointed out that 80% of the monies related to the winding up of Neil Woodford's Equity Income fund was returned to clients in the period with “no clear adverse impact with most of the AUA remaining on platform”, raised its full-year revenue forecasts to reflect the better than anticipated four month period revenues and flows.
Cost forecasts were also increased by the bank to reflect the incremental costs that accompany the increased marketing, client onboarding and trading activity.
Analyst Paul McGinnis as broker Shore Capital said it was a “very strong” update, with HL adding 94,000 net new clients since the end of December to increase the customer base by 7.4% to almost 1.4mln ,368,000 in the last four months, compared to the addition of around 50,000 in the first half of the year, of which circa 20,000 were the result of back-book transfers.
ShoreCap is likely to be upgrading forecasts by 5-10%, McGinnis said in a note to clients, saying the revenue growth implies upward pressure to consensus forecasts, he said, provisionally to a figure closer to £530m.
Most of this will be dropping through to the bottom line, he added, as revenue margins on share trading, representing roughly a third of AuA, are now expected to be in the range 35-40 basis points (bps) for the full year compared to 25.9bps in the first half and guidance of 24-28bps given at the interim results in January, implying circa 50bps in the second half, double the normal level.
“As such, while the higher than expected AUA will continue to attract management fees, the increased trading revenues will likely ‘normalise’ in the next financial year to Jun ’21,” the ShoreCap analyst said.
Shares up with events?
ShoreCap upgraded HL to 'buy' from 'hold' after February's interims results but then back to 'hold' in April due to the impact of the Covid-19 pandemic on AuA and the squeeze on client cash margins from the Bank of England base rate cuts.
“Markets have recovered further since that time, and today’s strong update also implying upside bias to our forecasts at current levels.
“We still view the HL business model as one of the finest in the UK market and think investors should take full advantage of the occasional opportunities presented by dips in the price, such as in March,” McGinnis said, retaining his 'hold' rating.
Numis upped its share price target to 1,664p from 1,451p after increasing its earnings per share forecast 7% to 66.8p for this year and 17% to 48.4p for next, but felt the share price was up with events so downgraded to 'hold' from 'add'.
Barclays upped its price target to 1,735p from 1,650p.