Hargreaves Lansdown says reforms won’t hurt as profits soar

Hargreaves Lansdown (HRGV.L) has dismissed fears that its business could be damaged by the onset of regulation of payments it receives from fund managers by announcing an impressive jump in assets under administration and full-year profits.

Pre-tax profit climbed to £126 million pounds in the year to 30 June, the firm said, up 46% from a year earlier and in line with analyst forecasts. Assets under administration rose 41% to £24.6 billion, beating expectations.

Ian Gorham (pictured), chief executive, voiced disappointment that a proposal by the Financial Services Authority (FSA) to ban fund managers from rebating charges to online platforms was ‘not yet clearly resolved’. But he said the group would be able to adapt to meet any regulatory requirements.

‘We see no current reason why our revenue or profits should be materially affected by the RDR,’ Gorham said today, referring to the impending overhaul of the financial advice sector under the FSA’s retail distribution review.

Hargreaves Lansdown shares soared 56p, or 13%, to 488p, making it the biggest rising stock on the UK stockmarket. This follows a bad month for the share price which had slumped 29% before today's rally – underperforming its sector and the wider London market – over fears the impact of the reforms could have on its business.

‘The market has been concerned about the RDR and direct client charging,’ pointed out James Hamilton, analyst at Numis. He added: ‘We expect burden sharing where customers pay a bit more, fund managers pay a bit and Hargreaves Lansdown takes a little less.’

Nonetheless, Numis upgraded the stock to ‘buy’ from ‘hold’ as Hamilton stressed that the broker still expected strong growth in its direct-to-retail platform, branding the group ‘strategically very well placed as the market leader.’

And Robin Savage, analyst at Collins Stewart, said the broker expected Hargreaves Lansdown to adapt to new rules without losing revenues or incurring large costs, lauding it as an ‘exceptional business’ with high margins and good growth prospects.

But Stuart Duncan, analyst at Peel Hunt, struck a more cautious tone as the broker slashed its target price for the stock to 432p from 634p, and maintained a ‘hold’ rating. Noting that the group still had ‘many attractions,’ he warned: ‘We believe that these will continue to be overshadowed by the uncertainty created by the FSA.’

In the earnings report, Gorham said the group was in a strong position, despite the ‘less-than-ideal’ economic environment and recent market turmoil.

He noted that fee reductions in its stockbroking service should encourage clients to consolidate investments within their Vantage accounts, adding that Hargereaves Lansdown planned to improve coverage of other investments such as passive funds and investment trusts.

Meanwhile, the group raised its final dividend per share from 0.58p to 8.41p and upped a special dividend per share to 5.96p from 1.7p, bringing the total dividend to 18.87p per share, up from 11.88p last year.

Hargreaves Lansdown is a top holding in Harry Nimmo’s Standard Life Investments UK Smaller Companies fund and Elaine Morgan and Audrey Ryan’s Aegon Ethical Equity , both Citywire Selection picks.