The FTSE 100 is up by just over 15% from the sub-5,000-low seen on 23 March. But some of the index’s shares are doing much better. The company I want to look at today is up by 30% since 23 March.
Despite this rapid recovery, I still think these shares could be cheap. I’m not the only investor with this view either. A top fund manager — who’s known as ‘Britain’s Warren Buffett’ — has also been buying this stock. Let me explain.
Profits could rise this year
The company I’m interested in is fund supermarket and broker Hargreaves Lansdown (LSE: HL). This DIY investing platform is broker-of-choice for nearly 1.3m UK investors. It’s by far the largest player in this market, with a market-cap of nearly £7bn.
Hargreaves hasn’t issued a trading update since the market crashed in March. Regulations for UK-listed stocks say that companies must notify the market of any significant change to expected performance. Hargreaves’ silence tells us its management still expect profits this year to be broadly in line with previous guidance.
I suspect the group’s income has been boosted by high levels of investor trading during the crash. This will have generated additional dealing fees, offsetting the reduction in fees caused by the falling value of funds under management.
We should find out more on 14 May, when Hargreaves is due to issue a scheduled trading update. But, for now, I’m pretty relaxed about the outlook for profits.
Britain’s Buffett is buying this FTSE 100 share
One noted investor who has held Hargreaves shares in his funds for many years is Nick Train.
He’s sometimes known as Britain’s Buffett for his successful long-term investing style. He runs the Lindsell Train UK Equity Fund, which has outperformed the FTSE All-Share Index by nearly 8% per year over the last 10 years. That’s a seriously impressive result.
So I was interested to see that Train has been topping up his fund’s holding in Hargreaves Lansdown recently. On 21 April, I estimate the fund spent £71m on Hargreaves stock. This increased Lindsell Train’s total holding by 1% to 13%.
Train is known for his high-conviction style of investing. But not many investors have 13% stakes in FTSE 100 stocks. This latest buy suggests to me he remains confident in the long-term outlook for this business.
Long-term value – I’d buy
Right now, this FTSE 100 share looks more affordable to me than at any time over at least five years. Hargreaves stock currently trades on 26 times 2020 forecast earnings, with a dividend yield of around 3%.
Although this might not seem very cheap, we need to remember this business is incredibly profitable. Last year’s operating profit margin of 63% made Hargreaves the third most profitable company in the FTSE 100.
Analysts’ forecasts currently suggest Hargreaves’ profits could dip slightly next year. I’d imagine this reflects concerns about subdued market conditions and lower asset values, which will reduce some fees.
I don’t see this as a concern. In my view, this market-leading business is likely to remain a winner. I see the shares as a good long-term buy at current levels.
