The Hargreaves Lansdown (LSE:HL.) share price is already elevated to reflect the likelihood of a takeover by private equity investors. As such, the FTSE 100 company’s 19 July trading update for Q4 is unlikely to move the share price too much.
Nonetheless, let’s take a close look at what the stockbroker reported.
Still growing
There’s been concern in recent years that Hargreaves wasn’t doing enough to attract new customers in an increasingly competitive market.
For Q4, the company reported 24,000 new clients in the period, up 85% year on year, with 1,882,000 active clients now on the platform. Growth, of any kind, is certainly positive.
However, I think it’s interesting to note that on 18 July, AJ Bell reported 25,000 new clients in the last quarter, taking the total number to 528,000. Despite being a third of the size, it’s growing faster.
Back to Hargreaves, Assets under Administration (AUA) closed the quarter at a record £155.3bn. That’s an outperformance with analysts expecting AUA to come in at £151.4bn at the end of the period.
This rising AUA was made possible by £1.6bn of net new business and rising asset prices across the quarter. For context, AJ Bell saw net inflows of £1.7bn in the quarter.
What we didn’t find out
Hargreaves doesn’t tend to include financial information in its tradings updates, so we’ll have to wait for the annual report — 9 August — to get the lowdown on what this all means for the business — assuming it hasn’t been taken over by then.
However, broadly speaking, the above data’s positive. AUA reaching peak levels and improving dealing volumes — averaging 838,000 a month and up from 685,000 a year ago — suggests that revenue figures could be quite strong.
It’ll also be interesting to see the impact of the company’s share dealing incentive programme. New and existing customers were offered up to £100 of reimbursements on their trading fees during Q4. In my case, I was reimbursed for almost all the trades I made.
Moreover, the company made no mention of the potential takeover. CVC has tabled a £5.3bn offer to buy the company and the board has recommended investors accept it.
Some investors have suggested they’re unhappy with the low-ball bid and claim it’s unfair to shareholders.
The bottom line
Hargreaves Lansdown stuck to the numbers in its Q4 trading update, and the numbers weren’t bad at all. However, the takeover bid put a whole new spin on the company. Instead of investing for the company’s fundamentals, we’d be investing on the likelihood of the takeover going through.
Should the deal be accepted, shareholders will receive 1,140p per share. That’s around 2.5% above the current share price. This suggests a deal’s likely. It also means there’s very limited opportunity to benefit as a new investor here.
With regards to the metrics, the company’s now trading around 15 times forward earnings, which is probably a little expensive, given its pace of growth.
However, I’ve always argued that its dominant position in the market — with around 40% of total AUA — gives it options, and I believe it could benefit from a cheaper fee structure.
