The Hargreaves Lansdown (LSE: HL) share price is having a rare day in the sun this morning as the market lapped up an encouraging trading update from the battered FTSE 100 financial services company.
I think this might be the turning point that patient holders have been waiting for.
Bullish signs
Hailing “good momentum” as the last tax year came to an end, the £4bn-cap saw revenue climb 6% (to almost £200m) in the three months to 31 March.
Share dealing volumes were also up, with more clients looking to invest overseas. And who can really blame them given the rise (and rise) of big tech stocks across the pond?
A 48% jump in net new clients in the period compared to last year is another bullish sign. CEO Dan Olley attributed this to the introduction of new products such as ready-made pensions and its innovative Cash ISA. The latter allows savers to spread their £20,000 allowance across a number of banking partners rather than just one.
Record-breaker
All told, Hargreaves generated £1.6bn net new business in the quarter – the same as that achieved in FY23. It finished with assets under administration of just under £150bn – a record for the company.
Of course, all this counts for very little if the outlook’s poor. However, recent momentum’s continued into April, no doubt helped by clients wanting to make the most of their new ISA and SIPP allowances.
This bodes well for the next trading update, due on 19 July.
A canny buy?
There’s certainly an argument for thinking that now might be a great time to begin building a position in Hargreaves Lansdown.
Based on existing forecasts, the stock trades on a price-to-earnings (P/E) ratio of 12. That’s not screamingly cheap compared to other stocks in the financial sector but it does look reasonable relative to the whole UK market. And a drop in interest rates could push analysts to radically revise their projections as people have more wiggle room to save for retirement.
Big dividends
The passive income stream’s hard to ignore too. A 46p per share, expected total dividend becomes a yield of 5.6%. That’s large enough to get me interested. But it’s not so huge as to make me believe that a cut is definitely on the way.
Obviously, nothing’s guaranteed. A sudden and unexpected macroeconomic wobble could bring recent trading momentum to a screeching halt. And investors simply can’t ignore that the company’s value has tumbled 63% in the last five years.
It must also be remembered that Hargreaves faces significant and growing competition from rivals in this space. While still a lot higher than your average FTSE 100 juggernaut, this company’s operating margins and returns on capital have been falling over the last few years as it fights for new business.
Cautiously optimistic
Here at Fool UK, we’re interested in investing in quality stocks for the long term. Placing too much emphasis on one small period of trading’s usually asking for trouble.
However, today’s statement does make me cautiously optimistic on Hargreaves Lansdown and it’s ability to deliver a market-beating return going forward. In fact, it’s enough to make me consider investing here myself when cash becomes available.
