The Hargreaves Lansdown (LSE: HL) share price looks perky today on the release of the full-year results report for the trading year to 30 June.
The firm provides the UK’s “largest” direct-to-investor service and administers around £100bn of investments for over 1.2m clients – generally, those customers are everyday investors such as you and me.
Great performance
But the share has been something of a stock market darling in its own right. The share price stands at 1,962p as I write, which is more than 900% higher than it was 12 years ago. And shareholders have collected a rising stream of dividends along the way too.
However, the recent Neil Woodford situation knocked the price back around 20%. Even while the Woodford funds were underperforming the market over the past few years, Hargreaves Lansdown kept the Woodford Equity Income Fund on its ‘best buy’ lists – right until the bitter end, it seems. When the fund pulled down the shutters and locked its investors in because of liquidity problems, Hargreaves Lansdown didn’t appear to see it coming.
So, the firm passively guided investors to buy into the Woodford fund and into the lock-in trap. Rightly, many have been questioning Hargreaves Lansdown’s judgement, and the market was unforgiving on the stock when the Woodford lock-in news broke.
But today, the share is going up and the full-year report reveals the company remains in good health. Revenue rose 7% compared to the equivalent period the year before and diluted earnings per share moved 5% higher. The figure for assets under administration lifted by 8%. In a sign of their confidence in the outlook, the directors pushed up the total dividend for the year by 5%.
Chief executive Chris Hill explained in the report that the second half of the trading year was “particularly strong.” In one standout statistic, the company’s HL Select Global Growth Shares fund has achieved over £350m of assets under management and is Hargreaves Lansdown’s “most successful Select fund launch to date.”
A lofty valuation
And Hill included an apology in his narrative to “all clients who have been impacted by the recent problems around the Woodford Equity Income Fund.” He emphasised that the company’s priority is to support clients affected by the debacle, keep them informed of developments and “ensure that the fund reopens as soon as is practicable.”
I’m inclined to forgive Hargreaves Lansdown for dropping the ball with regard to Woodford, and I won’t let the situation cloud my assessment of the stock as an investment proposition. However, the growth story is long in the tooth and the valuation looks high.
The forward-looking earnings multiple for the trading year to June 2020 runs above 32 and the anticipated dividend yield is about 2.4%. Meanwhile, City analysts predict earnings will grow by percentages in the early teens at most over the next couple of years. I’m cautious about the stock on the grounds of its rich valuation.
