Hargreaves Lansdown PLC (LSE:HL.) slumped 17% to 1,075p as the wealth management platform operator posted a drop in half-year profits and signalled a period of heavy investment.
Revenue in the six months to the end of December 2021 eased to £291.1mln from £299.5mln in the second half of 2020, while profit fell to £151.1mln from £188.4mln.
The group said it be making an estimated £175mln investment in the business aimed at delivering future growth and operational efficiencies and said this would be partly funded by the suspension of any special dividends in the current and next fiscal year, although the intention is to reinstate special dividends in fiscal 2024 (FY24).
The board, however, is confident that Hargreaves Lansdown has sufficiently strong financial, liquidity and capital positions to execute its strategy without constraints and hence has committed that the ordinary dividend will grow by at least 3% throughout the period to FY24.
The interim dividend for this year has been increased to 12.26p from 11.9p last year.
The company set out its plans for its next phase of growth at a Capital Markets Day that kicked off at 8.00am today.
It said there are five core elements to its strategy: developing its digital backbone; leveraging data-driven insights for clients; rapidly expanding its investment solutions (i.e. range of funds); accelerating active savings; creating “the best digital and human advice service”.
The £175mln earmarked for this transformation will be spread over five years, split as follows: FY22 circa £10mln; FY23 c£20mln; FY24 c£15mln and FY25 c£5mln).
The board believes the investment will deliver annual ongoing cost savings that build up to £55mln over the period of investment and fund circa 80% of the investment spend.
“In the first half of this financial year, we saw a gradual return to the office and calmer markets which led to more normalised share trading levels, albeit still higher than before the pandemic. Our assets under administration have reached record levels, and we now have a record 1.7 million customers,” said Chris Hill, the chief executive officer of Hargreaves Lansdown.
Total assets under administration rose 17% to £141.2bn at the end of 2021 from £1206bn at the end of 2020 with net new business contributing £2.32bn to that (down 28% from £3.24bn the year before).
“As the market leader, with a stronger than ever 43.3% market share, now is the right time to target the broader wealth management market and set a new standard for how the UK saves and invests. At our Capital Markets Day today, we will set out a clear plan for HL's next phase of growth - to redefine wealth management,” Hill said.
Rob Murphy, the managing director at research house Edison Group, said: "With the retail trading boom caused by the macro-economic uncertainties surrounding the pandemic slowly declining, Hargreaves Lansdown PLC recorded a drop in profit before tax of 20%, from £188.4m in H121 to £151.2m in H122. The market-leading wealth management platform also saw its net new business shrink substantially from £3.24bn in the previous year to £2.32bn, marking a decline of 28% and below the consensus estimate of £3bn. As a result, earnings per share have dipped to 25.7p, down 20% from 32.1p in H121. These levels are similar to pre-COVID results, underlining the pandemic-driven influx of new users and the growth in share trading. Despite these figures, Hargreaves Lansdown gained 48,000 new clients, reaching a record level of 1.7m total users. Assets under administration rose 4% to £141.2bn but were also shy of the market estimate of £143.6bn.”
"Despite the softer market, HL continues to gain share of the D2C [directly-to-consumer] market, reaching 43.3% with client retention rising to 92.7% as a result of a strong focus on client service.
"The group has announced a new growth strategy which attempts to take advantage of what it sees as a key inflexion point in the industry by investing in digital, data insights and adding new funds geared towards ESG [environment & social governance] in order to grow its share of client wallet. The growth strategy will, however, require significant investment spend of £175mln over the next five years, and with more competition in the marketplace including AI-enabled robo-advisers, the market will be watching Hargreaves Lansdown’s development closely,” Murphy said.