Hargreaves Lansdown profits boosted by cash balances – but new business levels drop

Interest on investors’ cash helped investment platform Hargreaves Lansdown grow profits slightly above forecasts in the final six months of 2023.

The FTSE 250 group, which exited the FTSE 100 last year, saw its underlying pre-tax profit rise 5 per cent to £221.5 million, beating expectations of £213 million, while revenues grew 5 percent to £368.2 million.

Assets under management rose to £142.2 billion, up 12 per cent on the same point a year ago.

But the outlook was not all rosy. Net new business, asset retention and customer retention all fell, driving down the company’s stock price on Thursday.

Hargreaves said “sustained levels of higher interest rates” helped improve its results.

The group earned £132.8m of interest on cash during the half-year, with a net interest margin of 216 basis points versus expectations of around 200 basis points.

This is up from £121.6m in the same period last year, when the group achieved a NIM of 168 basis points.

It comes amid increased scrutiny by the City regulator over investment platforms’ profits on investors’ cash.

Hargreaves Lansdown, AJ Bell and Abrdn suffered a collective loss of £458m of their value in December after the Financial Conduct Authority (FCA) launched a crackdown on unfair charges.

According to the FCA, most firms keep some of the interest while charging customers a fee to hold the cash, in a practice known as “double dipping”.

All eyes on new boss Olley’s transformation plan

However, the group’s customer retention rate was 91.6 percent at the end of the period, up from 92.4 percent at the end of the first half. Asset retention fell to 89.2 percent, down from 91.4 percent at the end of the previous half year.

Net new business fell around 38 per cent to £1bn. The company’s operating costs rose to £24.7m, up from £23.4m at the end of the previous half-year.

hargreaves actions They were down 7.72 per cent or 62.20 pence at 743.20 pence on Thursday afternoon, having fallen more than 14 per cent in the last year.

New boss Dan Olley said: “Money outflows were higher in products our clients use for more transitory savings and investments, such as our Fund and Shares Account, driven by cash withdrawals to address cost issues of life and/or to pay reduce debts.’

He added: ‘It is now six months since I took over as CEO and it is clear that the business is built on solid foundations; a proud heritage, with a trusted brand and expert, customer-focused colleagues.

“What is also clear is the work that needs to be done to capitalize on those foundations and reposition HL to take advantage of the structural growth opportunities ahead.”

Among other plans, Olley wants to accelerate growth and reinvest money to ensure Hargreaves becomes a more efficient business.

The period saw an increase in transfers to banks and building societies to “take advantage of Cash ISA products”, Hargreaves said.

Looking ahead, Hargreaves said it would target ordinary dividend growth within its guidance, around 4 per cent.

UBS analysts said: ‘Hargreaves Lansdown has one of the lowest (most negative) crowding scores in the UBS coverage universe.

‘Today’s results were slightly above expectations at a PBT level, but we view commentary on cash trends and continued funds flow challenges (and declining customer retention rates) as likely to be disappointing. .

“It is clear to us that new CEO Dan Olley is taking control of a transformation plan and much will depend on the success of this implementation in the coming periods.”