22nd Feb 2022 09:14
(Alliance News) - Hargreaves Lansdown on Tuesday reported a sharp drop in profit in the first half as client activity was "calmer" and has seen its shares plunge as the firm set out its investment plans for the next 5 years.
Shares in the FTSE 100-listed fund supermarket were down 17% in early trading in London on Tuesday at 1,075.09 pence each.
"The stock is going down. Earnings reduction for this year and next is likely to be about 10% to 15%. While this is an amazing business, still taking [market] share, the cost of reacting to competitive threats is significant, and the profitability and growth outcome is not above current expectations. With 43 basis point forecast revenue margin versus AJ Bell Investcentre at 31 basis points, Interactive Investor still lower, the offering 'has' to be at the top end of UK Direct to Consumer investment solutions," Shore Capital analyst Ben Williams said.
In the six months to December 31, pretax profit slumped 20% to GBP151.2 million from GBP188.4 million. Revenue in the first half slipped to GBP291.1 million from GBP299.5 million.
Chief Executive Chris Hill said: "In the first half of this financial year, we saw a gradual return to the office and calmer markets which led to more normalised share trading levels, albeit still higher than before the pandemic. Our assets under administration have reached record levels, and we now have a record 1.7 million customers."
HL ended the first half with assets under administration of GBP141.2 billion, up 17% from GBP120.6 billion at the same point the year before, and 4.2% higher from GBP135.5 billion six months earlier.
The firm recorded GBP2.32 billion in net new business in the first half, down from GBP3.24 billion the year prior.
Hargreaves declared an interim dividend of 12.26 pence, up 3.0% from 11.9p the year before, but has noted it will halt any special dividends for the next couple of years to, instead, focus on increased investment spending.
"Through financial 2022 and financial 2023 we will fund the planned investment spend, in part, through the suspension of our special dividend but will reinstate it from financial 24 onwards. We will maintain a 3% per annum growth rate in our ordinary dividend for financial 2022 and financial 2023 whilst the special dividend is suspended, reflecting the confidence the board and management have in the company's financial and strategic outlook," Hargreaves explained.
Over the next 5 years, from financial 2022 through financial 2026, HL plans to spend GBP175 million of "strategic investment cost to deliver future growth and operational efficiencies".
As part of that growth, HL expects net new business to grow to high-single digits as a percentage of opening AuA by financial 2024 and then rising to about 10% by financial 2026, which the company noted would represent about GBP20 billion net new business in financial 2026.
"We will simultaneously drive improved client acquisition to achieve a client base of about 2.1 million by financial 2024 and about 2.6 million by financial 2026," HL added.
CEO Hill said: "Looking ahead to the remainder of our financial year, we are now rapidly approaching the all-important tax year-end season. We enter this period with more clients than ever before, with improved client service levels and greater levels of client engagement.
"Such a skew towards an improved second half performance is not new, but what is, are the significant levels of inflation we are currently seeing along with geo-political tension and it is not clear how this may impact on markets and investor confidence in the coming months."
By Paul McGowan; [email protected]
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