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10 Aug 2021 | 10:46

Credit Suisse lowers target for Hargreaves Lansdown, stays at 'underperform'

(Sharecast News) - Analysts at Credit Suisse trimmed their target price for shares of Hargreaves Lansdown following the investment platform's latest full-year numbers. The target price was marked down from 1,520.0p to 1,430.0p with the recommendation on the shares unchanged at 'underperform'.

In their opinion, specific headwinds such lower margins on funds and in share dealing, as well as higher costs offset the general tailwinds for the industry.

"We believe ambitious targets on hard-to-forecast share dealing revenues, along with uncertainty on costs and ferocious competition, shrink Hargreaves' margin for error," they said.

In the last quarter of the 2019 financial year, Hargreaves registered £900m of net flows excluding books purchases.

Fast-forward two years later and despite £52.0m of marketing and distribution spend, and 420,000 more clients, it recorded the same net flow.

It was a similar story for share dealing with Hargreaves' margin targets implying 790-990,000 deals each month.

Credit Suisse had penciled-in around 700,000 per month but said that was "generous" given the normalisation already evident in retail trading.

All told, the analysts trimmed their revenue forecasts for 2021-23 by 1.0-2.0% on lower expected margins on funds and modestly increased their operating cost estimates by 1.0-3.0% for over the same period.

In parallel, marketing costs were expected to continue to increase by double digits, alongside staff costs, although dealing costs were also seen normalising as international volumes reduced.

"Despite the limited downside implied by our TP, we continue to see a risk of further de-rating, with catalysts being weak share dealing, low Net New Business, and higher costs.

"In our view, Hargreaves' pricing structure remains unsustainable, and underpins its fragility."
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