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Moving on from Neil Woodford: how I’d cash in on FTSE 100 volatility

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This time last year, Hargreaves Lansdown (LSE:HL) suffered reputational damage due to its support of the management fund run by the much-maligned Neil Woodford. A year later and its share price has yet to recover. However, I think the current volatile conditions of the FTSE 100 make it a good time to invest in this industry-leading company.

Has HL moved on from Neil Woodford?

It has been a volatile year so far for investors in the FTSE 100, as the value of the share index fell from a height of 7,500 in January to the depths of 5,000 in March. The subsequent recovery to circa 6,500 has been equally volatile.

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During this time some investors will have panicked and sold their shareholdings, forgetting the principles of why they invested in those businesses to start with. Elsewhere, others will have focused on a company’s long-term credentials and gone bargain hunting, comforted by Warren Buffett’s famous words “be greedy when others are fearful and fearful when others are greedy”.

In summary, there can be no question that transactions in buying and selling shares will be much higher than normal. This is fantastic news for Hargreaves Lansdown, which has the largest market share of the investment management platform industry. However, do the company’s shares deserve to be at current levels following the Neil Woodford saga?

Positive trading statement

Hargreaves Lansdown issued a trading statement issued on 14 May supporting this theory. It confirmed that in the period up to 30 April, net new business totalled £4bn year-to-date (up from £2.9bn in 2019) and it had 94,000 new clients. Year-to-date revenue was up 13%, supported by record volumes.

The long-term outlook for the company appears very promising, I believe, and the numbers support this. The business has net cash on its balance sheet, providing it with good defensive qualities, and its operating profit of 51% is one of the best in the FTSE 100.

It appears that despite the good news, investor sentiment for companies in the financial sector is unfairly weighing on the current share price, which remains 11% down year-to-date. The share price was as high as 2,400p in May 2019 until the Neil Woodford debacle, with Brexit uncertainty and a global pandemic pinning it down to its current level.

The downside

The shares do appear expensive, with a price-to-earnings ratio of 32, but I am comfortable future growth will dilute this number.

The dividend yield is a disappointing 2%, which is below the FTSE 100 average of 4.1%. On the plus side, dividend payments are growing and have increased by over 50% since 2015. The next scheduled dividend payment is in October and I am hopeful that it will not be cut, deferred or suspended due to the strength of its recent performance. Then again, 32 other companies in the FTSE 100 have taken this action, so nothing would surprise me.

Summary

There aren’t many companies that can boast growing revenues, profits, increased business and a healthy balance sheet at the present time. To me, these shares are undoubtedly a great long-term investment despite the Neil Woodford negativity weighing on them, and are close to the top of my watch-list.

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Ben Race has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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