Hargreaves Lansdown reports higher assets under management

Hargreaves Landown (HL.) looks set to end its 17-year presence on the stock market after the board accepted a £5.4bn, or 1,140p a share, offer from a private equity consortium led by CVC, Nordic Capital and Platinum Ivy after a prolonged round of discussions and negotiations. Unsurprisingly, this gave the results a valedictory feeling of finality, although the deal won’t be fully approved until a shareholder vote at the next general meeting in October.

An interesting feature, which was an apparent sticking point during negotiations, is that the deal allows existing investors to roll over their holdings into the private company, if they so wish, although this risks dilution as the new owners will cover the £100mn costs of the buyout by issuing private shares.   

The core business is still attracting net new flows; these were 13 per cent lower at £4.2bn, although the second half saw a pick-up as investors moved cash onto the platform. Overall, that meant that assets under administration were 16 per cent higher at £155bn. Cash was a big component of the revenue performance, with £12.4bn of cash on the platform generating £260mn of revenue through net interest.

Underlying operating costs rose by 8 per cent to £338mn, with salaries and personnel costs among the biggest increases. Hacking away at the cost base and introducing technology to simplify its processes will be a number one priority for the consortium. It also seems to have a commitment which the board decided that the company could not achieve on its own. Hargreaves Lansdown has faced increasingly stiff competition from smaller, but very nimble rivals such as AJ Bell (AJB).

Peel Hunt reckons that the offer price is not huge at 16.5 times earnings forecasts for 2025, or roughly 23.5 per cent of assets under management; it reflects the scale of investment required in the platform. The broker also thinks that, given the effort taken to reach an agreement, interest from other potential buyers is unlikely at this point.

The bid company’s rationale for buying up Hargreaves Lansdown mirrors the qualities we identified in our successful, and now retired, idea earlier this year that HL. was simply too big, too well known, and too well-off to stay at what was a decade-low valuation for long. Being proved right unfortunately means the loss of another great company from the UK market, but the logic of the transaction for a private equity company is just too compelling. Investors should now await documents. Hold.

Last IC view: Buy, 765p, 22 Feb 2024