Hargreaves Lansdown, the UK’s largest retail investment platform by market share, yesterday released a trading update that showed both solid progress but also signs that the company’s rate of organic growth is slowing. HL’s role in promoting the controversial Neal Woodford fund that was frozen in June was less of a concern to analysts questioning the company at its annual shareholders meeting yesterday than signs of its slowing growth. Hargreaves Lansdown had championed the Woodford fund and when withdrawals were suspended a few months ago 300,000 of the platform’s customers had more than £1.6 billion locked up in it.
Hargreaves Lansdown attracted 35,000 new clients to its investment platform over the quarter between July and September, taking its total number of active account holders to 1.26 million. Assets under administration were up 3% to 101.8 billion with ‘new net business’ contributing £1.7 billion. However, of that total only £800 million, under half, came from ‘organic growth’. The remaining £900 million was added as a result of asset transfers from JP Morgan and Baillie Gifford, who closed down their own retail investment platform businesses.
The company warned investors that a combination of Brexit and the trade war between America and China was shaking investor confidence, resulting in the slowdown in organic growth, which came in at £1.3 billion over the same three months the previous year. James Roberts, an analyst at the stockbroker Jefferies commented for The Times:
“While the boost from direct transfers is welcome, those customers will pay their previous providers’ fee rates for their existing products for three years, meaning they will be lower margin, at least to start with. Combined with the reduction in organic growth, this update chimes with our longer-term view that growth and margins will come under more pressure over time.”
The Hargreaves Lansdown share price dropped 2.7% yesterday to £17.67, taking total losses since May to over 27%. A recovery this morning has seen the share price reclaim 0.8% in early trading. Despite the drop-off in organic growth, the company’s net revenues were up 6% on the same quarter last year, coming in at £128.1 million. The intention to ‘trim costs’ after a period of significant investment in digital marketing, technology and human resources over 2017 and 2018. The company commented:
“Whilst we anticipate that costs will typically be aligned to client number growth, we are mindful of the external market environment, and hence remain watchful on costs despite the client and revenue growth experienced during the period.”