Shore Capital has upgraded its rating for Hargreaves Landown PLC (LON:HL.) to ‘buy’ from ‘hold’ after materially raising its forecasts and fair value for the investment platform operator.
The City broker’s analysts noted that the FTSE 100-listed firm does not issue a separate second quarter Assets under Administration (AuA) update ahead of its interim results, due on February 1, 2021, but such was the rise in markets seen in the fourth quarter of 2020, along with the continued elevated retail share dealing that this catalysed, the performance is expected to be strong.
In a note to clients, the ShoreCap analysts said: “With most major equity indices up over 10% in the three months to 31st December (including the FTSE-AllShare up 12%), we expect a strong contribution from market movements to HL’s AuA in the quarter.”
They added: “We would also expect the buoyant markets to have re-stimulated an already elevated level of share dealing activity in the period, boosting the revenue yield in HL’s shares category (c35% of total AuA).”
“We think there is a more permanent aspect emerging to these favourable market conditions, enhancing HL’s ability to convert the surge in new ‘trading’ clients into ‘investing’ clients, making use of ISA and SIPP wrappers.
“This creates more of an annuity revenue stream once the sugar rush of dealing commission calms down,: the analysts concluded.
They increased their June 2021 and 2022 earnings per share forecasts for Hargreaves Lansdown by 12% and 10% respectively and raised their fair value for the stock to 1,850p from 1,625p.
In late morning trade on Friday, the stock was up 3.9% at 1,631p.
Barclays also raises estimates but trims target price
Meanwhile, analysts at Barclays reiterated an ‘overweight’ rating on Hargreaves Lansdown, as their ‘Spend Trends 2.0’ points to heightened activity, and also raised their full-year 2021 estimates for the group, but cuts their estimates further out and reduced their target price after a de-rating of the shares.
The Barclays’ analysts said: “We see the de-rating at Hargreaves Lansdown (HL) as excessive as the market focuses to a too-great extent in our view on the interest rate cycle effects on revenues at the expense of potential positive surprises that may emerge in activity and also from stronger markets.
“While other investment platform stocks have seen valuations retain stable P/E ratings or even increase, HL has seen a de-rating that has left it at a c.15% discount to its longer-term valuation.”
They added: “We raise our FY21 revenue and EPS estimates to reflect the recent stronger markets and the Barclays Spend Trends 2.0 activity indicators but trim our FY22 and FY23 estimates to reflect the ongoing low LIBOR rates.”
The analysts reduced their target price for Hargreaves Lansdown shares to 1,925p, down from 2,010p previously.
On Thursday, Citigroup upgraded its rating for Hargreaves Lansdown to ‘neutral’ from ‘sell’ after also raising its estimates and upping its target price to 1,570p.
The US bank’s analysts said: “In the past 3 months since 1Q21 trading update, HL shares have fallen by -5% vs peers +20% and now trade at 26-27x FY21-22E EPS, in-line with long-term avg.”
They added: “We are still concerned about negative jaws in FY21 but after the de-rating risk-reward looks more balanced. We expect NNB (net new business) to recover in 2Q21 on the back of the recent market rally.”