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11 Oct 2021 | 14:24

Morgan Stanley upgrades Hargreaves Lansdown

(Sharecast News) - Morgan Stanley has upgraded its rating on Hargreaves Lansdown, in line with a steepening in the UK rates curve. The bank, which has increased its recommendation to 'equal-weight' from 'underweight', also upped its price target to 1,446p from 1,381p.

It said: "With UK rates curve further steepening and Bank of England comments suggesting growing hawkishness, we see positive revisions risks linked to net interest income.

"Core headwinds around platform and stockbroking pricing and normalised trading volumes remain. But we move to 'equal-weight' in view of near-term rates-related upside."

Last month the Monetary Policy Committee voted to keep rates on hold at 0.1%. But with inflationary pressures growing, some analysts now believe a rise could come sooner than previously expected. At the weekend, MPC member Michael Saunders said households should get ready for a "significantly earlier" interest rate rises, the Telegraph reported.

Up until recently, markets were generally not pricing in any rises before February 2022.

Morgan Stanley conceded that core challenges for Hargreaves Lansdown remained "intense".

It noted: "We see the emergence of more credible and lower cost providers with decent breadth of offering and/or materially cheaper pricing...placing structural headwinds to top line growth in the core platform business, while driving necessary investment in services."

But it concluded: "While we expect that the 15 October trading statement will evidence lacklustre net new money growth impacted by seasonal factors, and revenues will reflect normalisation in transactional activity, we see positive revision risks looking forward linked to a steepening UK rates curve.

"After underperformance year-to-date and given negative positioning in the name, we feel our near term risk/reward more balanced, and move tactically 'equal-weight'."

As at 1500 BST shares in the blue chip were 3% higher at 1,447.9p.
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