23rd May 2024 12:13
(Alliance News) - Hargreaves Lansdown's lowly valuation, high quality earnings and valuable customer base were all cited as likely reasons behind the takeover approach on Wednesday from a group of private equity firms including CVC Advisers.
On Thursday, shares in the Bristol, England-based wealth management platform rose 10% to 1,076.50 pence each in London.
The consortium on Wednesday said it was considering a possible offer for Hargreaves Lansdown after having made a 985 pence per share proposal on April 26.
Hargreaves Lansdown said the proposal "substantially undervalues" it and its future prospects. It rejected the approach.
The consortium which made the proposal includes CVC Advisers Ltd, Nordic Capital XI Delta, and Platinum Ivy B 2018 RSC Ltd, a wholly-owned subsidiary of Abu Dhabi Investment Authority.
The consortium has until June 19 to announce a firm intention to make or not make an offer for Hargreaves Lansdown.
Shore Capital analyst Vivek Raja said the offer reflects Hargreaves Lansdown's lowly valuation.
He pointed out though the stock has rallied meaningfully from a trough at around 700p in March, a 12-month forward PE of around 15x and dividend yield of more than 4% is low by historical context.
"HL’s extensive and, in our view, sticky client base straddling around 40% of the UK [direct to consumer] platform investing market is valuable. Whilst the company’s rate of adding new clients has slowed in the past few years, long-term growth prospects are underpinned by UK wealth formation and the need to save, the shift towards self-directed investing, and the shift of assets from non-platform schemes to investment platforms," Raja added.
"The earnings HL produces are high quality, offering good cash flow visibility, which we imagine would be part of the consortium’s attraction," he said.
UBS pointed out Nordic Capital has experience in this sector. It previously took Nordnet private in October 2016, investing in the platform technology and proposition, before returning it to the public market in November 2020.
In the case of Nordnet, private equity worked alongside the original founders of the firm, UBS pointed out.
UBS thinks for a bid to be approved at HL, that the support of 20% shareholder Peter Hargreaves would be necessary. Other significant shareholders are Lindsell Train, 12%, co-founder Stephen Lansdown, 6%, Blackrock, 6%, and Baillie Gifford, 5%, UBS noted.
"HL is already more than half way through its own four year GBP225 million investment and turnaround plan, focusing first on technology, customer service and better marketing its proposition to clients. Taking the company private could potentially allow for a bolder plan, without the need to sustain as much profitability in the near term," the Swiss bank stated.
Peel Hunt said the appeal of HL includes its 1.8 million customers and its leading market position in the UK.
"HL shares have been on the rise recently, but they remain well below historical levels," the broker noted.
By Jeremy Cutler, Alliance News reporter
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