Hargreaves Lansdown (LSE:HL.) and AJ Bell (LSE:AJB) are FTSE 250-listed brokerages. These are companies that provide the platforms that allow us to invest in the stock market. They also provide other advice-related services.
Some good news
On Thursday 18 January, both these stocks surged. AJ Bell shares jumped 6% while Hargreaves Lansdown shares surged 4%. So, why is this?
Well, AJ Bell’s Q1 trading update is the answer. The Manchester-based firm announced “record” assets under administration and rising customers during the quarter.
The brokerage recorded a 2% increase in customer numbers, and a 63% uptick in capital inflows.
AJ Bell’s CEO Michael Summersgill said the results reflect “increased confidence among retail investors”. That’s a very important statement for a sector that’s struggled since the pandemic.
Hargreaves Lansdown isn’t releasing its next quarterly update until 15 February, but it makes sense to assume that the Bristol-based company is also experiencing tailwinds.
In search of better returns
I had suggested something along these lines previously. But with interest rates set to fall in 2024, we’d expect to see Britons move their money away from cash (savings accounts) and debt, and towards stocks and shares.
It’s simply a matter of chasing better returns. And as stock brokers, I’d expect to see both these companies benefit from this trend.
If that is the case, it could be a really strong year as higher (than usual) interest rates also mean stronger net interest income.
In its H1 results, Hargreaves said it had a 168 basis point margin for cash. That’s up 976% over 12 months.
Strong cash margins and more investor activity would be excellent for both these companies.
Which stock is best?
Hargreaves has almost double the assets under administration. And that puts it in a strong position, allowing for higher net interest income and as the UK’s no. 1 brokerage, size can help with customer acquisition, among other things.
However, AJ Bell is certainly growing faster. The Manchester firm has recorded growth far greater than any of its peers in the market.
Let’s see what the data says about these two companies. The table below highlights the earnings per share (EPS) forecast as well as the associated price-to-earnings (P/E) ratios — the lower the better.
| AJ Bell | Hargreaves Lansdown | |||
| EPS | P/E | EPS | P/E | |
| 2024 | 17.1 | 18.3 | 59.7 | 12.5 |
| 2025 | 17.9 | 17.4 | 58.8 | 12.7 |
| 2026 | 19.9 | 15.7 | 61.8 | 12.1 |
As we can see, AJ Bell offers better growth but is more expensive on a forward earnings basis.
However, we also should consider the dividend. Hargreaves is currently offering a 5.5% dividend yield, while AJ Bell offers 3.4%.
The bottom line
So, where do I stand?
I prefer Hargreaves Lansdown because it’s in a dominant position in the market, has a juicy dividend yield, and remains much cheaper than AJ Bell.
However, I do think Hargreaves needs to up its game. Its fees are higher than its peers, and while the customer service is excellent, I just want a little more from it as a brokerage.
What could more look like? Maybe access to more data and more frequent analysis. I’d happily pay a subscription fee for that.
