The FTSE 100 has had a pretty average 2023, returning only 0.3%.
However, Hargreaves Lansdown (LSE:HL) shareholders would have been far happier with this than with what they actually got. Its shares have fallen by a miserable 13% in the same timeframe.
This looks to be a continuation of a long-term trend, with its shares down 60% in the last five years.
However, among the misery it has returned in that period, I believe now would have been a great opportunity to add some of its shares to my portfolio, if I had the spare cash to do so.
Excellent results
Hargreaves Lansdown has been growing exponentially recently. Both the top and bottom lines soared in 2023.
Revenue was up 26% year on year from £583m in 2022 to £735m this year.
Profit for the year was even more impressive, growing by 50%, from £216m to £324m.
Regulatory concerns
However, despite these great numbers, it faces some regulatory pressures.
Last week, the Financial Conduct Authority (FCA) wrote a letter to 42 companies, including Hargreaves Lansdown, which stated that they must stop the practice of ‘double dipping’ by the end of February.
Double dipping is a practice where firms charge clients for holding their money while keeping some of the interest that they’re earning on it. Higher interest rates have made this practice increasingly popular in recent times.
This is a concern for me.
It seems like the market also agrees with this sentiment, as its shares were punished with a 9% drop in value last Tuesday morning (12 December), following the release of the letter.
However, I don’t think this is a huge issue for Hargreaves Lansdown. The interest earned on holding client funds isn’t a significant portion of its revenue.
The wider opportunity
With 1.8m clients, it’s the UK’s largest savings and investment platform.
Even though there are cheaper alternatives available for investors to use, it still manages to have a client retention rate of 92%.
This is because it offers a higher-quality service, with a diverse range of products investors can choose from. This is how it’s been able to dominate the direct-to-consumer market, with a 41.8% market share.
What’s more exciting is that it believes the total addressable wealth market could be £3.7trn by 2026, as the popularity of investment platforms continues to grow.
If it can retain its market share, its growth should speed up.
Moreover, with a price-to-earnings (P/E) ratio of 10.6, its shares represent great value for money for the growth it’s experiencing.
With a dividend yield of 5.8%, there’s also a great opportunity to generate some passive income on the side.
Therefore, if I had the spare cash to do so, I’d buy some Hargreaves Lansdown shares today.
