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Hargreaves Lansdown’s £130bn growth chance woos analysts
Morgan Stanley raises its target price for shares in the online stockbroker, but says 'conviction in blue skies' is needed.
A £130 billion pot of assets held by DIY investors could provide an ‘under-appreciated’ opportunity for online stockbroker and funds supermarket Hargreaves Lansdown (HRGV.L), say City analysts.
In addition to this ‘significant’ opportunity beyond Hargreaves’ existing growth in its ISA and Sipp pensions investment supermarket products, analysts at US banking group Morgan Stanley cited the company’s ‘clear competitive advantage’ as they raised their target price for the shares to £10.50 from £7.59.
In a note to clients, the analysts referred to assets under management (AUM) saying: ‘We see HL increasing market share of UK mutual fund AuM from ~2.5% to ~3-4% over 2-3 years, as it benefits from a strong service reputation, visible brand, negotiating power with fund managers and broad offering.'
The analysts reckon Hargreaves could tap into at least 5% of the £130 billion pool of assets held by investors who are shunning financial advice after new rules forced advisers to stop taking commission from financial providers and charge their clients directly instead. This proportion rises to 25% in Morgan Stanley’s ‘bull case’ for the shares.
‘Those platforms already targeting the consumer directly (eg, HL, Barclays and TD Direct) look best placed,’ to benefit from this influx of cash, the Morgan Stanley team said.
Hargreaves shares, currently at £9.77 after rising 68% over the past year, are trading at a premium to FTSE-listed asset management companies, deemed the company's nearest listed competitors.
For that reason, Morgan Stanley rates the shares as ‘equal weight’, stating that a more upbeat outlook would require ‘conviction in blue skies’ from investors.
However, they add: ‘We believe that HL’s premium valuation is justified by the lack of performance risk – ie, poor performance drives consumers to switch fund managers, not platform provider.’
City brokers are in general divided over the fate of Hargreaves shares, with questions still remaining about the long-term impact of the abolition of commission on its business. DIY investor platforms will be barred from taking rebates (a share of annual fund management fees) from investment groups from next April. Rivals are waiting to see how the Bristol-based firm responds when it unveils its new charging structure later this year. On average analysts rate the shares as a ‘hold’.
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