Summary

  • Hargreaves Lansdown is the UK’s number one platform for private investors.
  • Today Hargreaves Lansdown is trusted with more than £120 billion by 1.6 million clients.
  • Hargreaves Lansdown is a secure, FTSE 100 company, headquartered in Bristol employing over 1,700 people.

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Company Overview

Hargreaves Lansdown (OTC:HRGLF, LSE:HL) is the UK’s number one platform for private investors. For nearly 40 years, Hargreaves Lansdown has helped clients save time, tax and money on their investments. Today Hargreaves Lansdown is trusted with more than £120 billion by 1.6 million clients. Hargreaves Lansdown is a secure, FTSE 100 company, headquartered in Bristol employing over 1,700 people.1

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Services

One home for ISAs, pensions, savings and investments.2

  • Retirement Service - Access your pension in the way that suits you. Buy a guaranteed income for life or stay invested and make withdrawals when you like.
  • Share dealing - Buy and sell shares with the UK's No.1 broker.
  • Fund dealing - Choose from over 3,000 funds with no charge to buy or sell.
  • Currency service- Send money around the world and you could save thousands of pounds with its highly competitive exchange rates.
  • Financial advice - Highly-qualified advisers based around the country to help you face to face or over the telephone.
  • Stocks and Shares ISA - A simple way to invest up to £20,000 free from UK tax.
  • Fund and Share Account - A low-cost, flexible investment account that makes anytime trading quick and easy.
  • Personal Pension (SIPP) - A pension that gives you control. Choose from ready-made portfolios or pick your own investments.
  • Lifetime ISA - Save and invest for your first home or later life and get an extra 25% from the government - up to £1,000 a year.
  • Active Savings - Pick and mix easy access and fixed term savings products from a range of banks and building societies, all through the convenience of one online account.
  • Cash ISA - You can now save up to £20,000 each tax year free from UK income tax through Active Savings, with its new Cash ISA.
  • Accounts for Children - Give your child a great start in life with one of its junior accounts.

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Industry Overview

The UK savings and investment market has seen significant growth in recent years and its addressable market is estimated at £3.0 trillion. Within this the company operate as the leading Direct-to- Consumer (D2C) UK platform with a 42.9% share of a market worth £289 billion. The structural factors at play along with an acceleration of existing trends resulting from COVID-19, look set to provide growth for many years to come and as the UK’s leading digital wealth manager Hargreaves Lansdown has a great opportunity to win in this growing market.3

The company's addressable market is made up of an estimated £1.4 trillion of private wealth plus £1.6 trillion of cash savings giving an implied market share for Hargreaves Lansdown of about 4.5%. Outside the D2C space, the bulk of this addressable market is held through independent financial advisers, independent wealth managers and vertically integrated firms. A significant amount of this investment pool will have been initially advised upon, maybe many years ago, but now receives no ongoing advice and little support. This provides a rich source of potential transfers to Hargreaves Lansdown as clients look to consolidate their investments onto its platform.

This £1.4 trillion is concentrated across around 7 million people with £100,000 or more of investments (source: ONS). However, more and more people are beginning to invest thanks to the various structural drivers explained below with COVID-19 accelerating this trend. In addition, pension auto-enrolment in the UK has revolutionised saving, with over 1.6 million employers and more than 10 million employees now participating in the programme.

ISAs

With the lowest interest rates on record, Stocks and Shares ISAs remain extremely attractive and Hargreaves Lansdown has seen significant increases in flows and account openings into the various ISAs on its platform. As at 30 June 2021, across the different types of ISA, the company had over 1.1 million active accounts and over £55 billion of assets on its platform.

The current ISA allowance of £20,000 provides great scope for tax efficient investing, particularly for higher earners who stand to lose some of their annual pension allowance and are impacted by the lower lifetime allowances. The ISA is increasingly becoming a long-term investment plan for many and hence provides a significant opportunity for new business flows. According to HMRC, as at 5 April 2020, the Stocks and Shares ISA market was estimated at £305 billion with an additional £313 billion held in Cash ISAs and £5 billion in Junior ISAs. Based on recent HMRC data, the average annual amount subscribed into ISAs over the past five tax years has been c.£70 billion. These statistics clearly demonstrate a significant opportunity to gather more assets into its core ISA products.

The Lifetime ISA (LISA), launched in April 2017, is open to those aged 18 to 40 and can be used towards a deposit on a first home or towards saving for retirement. The allowance is capped at £4,000 per annum but is eligible to receive a 25% bonus from the government. As at 30 June 2021 Hargreaves Lansdown has over 89,000 accounts with £907 million of invested assets, which makes it the largest provider of LISAs. Many of its LISA clients are new to Hargreaves Lansdown highlighting how it serves as a way of attracting a younger demographic to its platform. For those who were already existing clients it helps strengthen the client relationship and enables it potentially to capture more of their investment wealth over time.

Pensions

Pension auto-enrolment in the UK has revolutionised saving, with over 1.6 million employers and more than 10 million employees now participating in the programme.

The workplace will continue to play a pivotal role in retirement saving and Hargreaves Lansdown Workplace Solutions, which already provides pension, investment and annuity services for over 500 employers, can really make a difference by improving employee engagement with saving through a range of high quality services.

Auto-enrolment has delivered demonstrable successes. However, Hargreaves Lansdown continues to lobby for further reform. We’re particularly concerned about the retirement savings of the self-employed and the ability for savers to exert control as to where their pension savings are directed. The self-employed are currently excluded from auto-enrolment and generally shun retirement saving yet number over five million. The flexibility of the Lifetime ISA coupled with incentives that make it more attractive for basic rate taxpayers makes it an attractive product for this left behind group.

Cash savings

Alongside risk-based investments, investors continue to hold cash despite persistent low interest rates on cash savings. The company's research shows that there is £1.4 trillion of cash held in the UK including c.£650 billion in easy access type accounts and the remainder in term deposit accounts. “Active Savings”, its digital deposit service provides a simple digital solution for managing cash savings. Since its launch Hargreaves Lansdown has continued to refine the proposition and during the year the company launched its initial cash ISA offering. As at 30 June 2021, the company had over 90,000 clients using the service with over £3.1 billion AUA. 

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Financial Highlights

During the year to 30 June 2021, the company introduced 233,000 net new clients (2020: 188,000 or 170,000 excluding direct book acquisitions) to its services and grew its active client base by 17% to 1,645,000. The average age of new clients is consistent with recent periods, albeit greater in scale, and they are behaving similarly to recent equivalent cohorts in terms of growing their AUA on the platform over time, diversifying their portfolios and using the tax wrapped accounts. Hargreaves Lansdown is encouraged by the qualitative aspects of these clients and the additional lifetime value they have brought to the Group as a result. 

The company's focus on service and the value its clients place on its offering is evidenced by client and asset retention rates remaining strong at 92.1% and 91.4% respectively (2020: 92.8% and 92.1%). The client retention rate is quoted on its historic measure where the company define active clients as those with over £100 on the platform. The company note that other providers quote this measure with active clients defined as those with over 1 pence on their platform. For comparative purposes, the HL client retention rate on this basis would have been 94.8% (2020: 95.7%, 2019: 96.1%, 2018: 95.8%)

Total AUA increased by 30% to £135.5 billion as at 30 June 2021 (£104.0bn as at 30 June 2020). This was driven by £8.7 billion of NNB plus positive market movement of £22.8 billion.

Underlying profit before tax, excluding the one-off gain from the sale of FundsLibrary in 2020, rose 8% to £366.0 million. This increase was driven by revenue growth linked to the increase in AUA on its platform through NNB and market growth along with record share dealing volumes across the year. Including the £38.8 million gain on disposal in the 2020 result, profit before tax fell 3%.

Revenue for the year was £631.0 million, up 15% (2020: £550.9m), driven by higher average asset levels and record share dealing volumes for the year. This increase compares to a decrease in the average FTSE All Share of 2.4%, showing the strength of the Group’s net new business performance over the past year and diversified revenue stream.

Revenue on Funds increased by 11% to £232.9 million (2020: £210.6m) due to higher AUA from a combination of net new business and market growth. Funds remain its largest client asset class at 49% of average AUA (2020: 52%), and the revenue margin earned on these this year was in line with its expectations at 40bps (2020: 40bps). The majority of the drop in the proportion of average AUA was due to a switch from Funds to Cash in the early stages of the pandemic, in common with the wider asset management market. Through the course of 2021, however, Hargreaves Lansdown has seen consistent volumes of Fund purchases especially after Vaccine Monday.

Since the completion of RDR in 2014 revenue margin on funds have broadly been stable. In May 2021 however, the company implemented a reduction in platform administration fees for its advised Portfolio Management Service clients and looking forward the company now expect the funds revenue margin to be slightly lower in the range of 38.5bps to 39.5bps. Funds AUA at the end of 2021 was £66.6 billion (2020: £51.7bn).

Revenue on Shares increased by 74% to £258.0 million (2020: £148.5m) and the revenue margin was 57bps (2020: 43bps), towards the upper end of its expected range of 45bps to 60 bps given at the Interim results announcement on 1 February 2021. This margin is primarily a result of the ratio of dealing volumes to average AUA, and in the year deal volumes have grown 54% whereas the average Shares AUA has grown by 31%. Hargreaves Lansdown is the leading retail stockbroking business in the UK, with a 43.3% share (source: Compeer Limited XO Quarterly Benchmarking Report Q1 2021). This has enabled it to benefit from the growth in share trading across the industry in the past 18 months, amongst both new and existing clients. This trend goes back to December 2019 post the General Election result and which picked up further in light of the COVID-19 pandemic and the associated market falls and lockdown periods. Total client driven deal volumes increased 60% to 13.1 million (2020: 8.2m). Within this increase overseas deal volumes were up 181%, Although overseas deals bring greater revenues they also incur greater dealing costs for it.

Operating costs increased by 24% to £266.0 million (2020: £214.9m) to support significantly higher client activity levels, maintain client service and invest in the growth opportunities the company see ahead for Hargreaves Lansdown.

The Group’s underlying profit before tax, excluding the one-off gain from the sale of FundsLibrary in 2020, rose by 8% to £366.0 million (2020: £339.5m). Including the £38.8 million gain on disposal in the 2020 result the profit before tax fell 3%. Profits after tax declined by 5% to £296.3 million (2020: £313.2m) as the effective rate of corporation tax rate increased to 19.1% (2020: 17.2%).

Diluted EPS decreased by 5% from 65.9 pence to 62.5 pence, as underlying growth was offset by the one-off gain on disposal of FundsLibrary in 2020. The Group’s Basic EPS was similarly down 5% from 66.1 pence to 62.6 pence. By removing the profit on disposal of FundsLibrary last year the company arrive at an underlying diluted EPS which has increased by 8% from 57.8 pence to 62.5 pence.

Chris Hill, Chief Executive Officer, commented: 

Hargreaves Lansdown has delivered a record performance and exceptional growth during an extraordinary and challenging year. The company's investment in the scalability, diversity and resilience of HL’s business model has resulted in a record 233,000 net new clients and £8.7 billion of net new business in the period, taking total clients to 1.645 million and assets to £135.5 bn.

The pandemic has accelerated two trends that were already evident to us: a permanent shift to digital; and a change in the demographic mix. Demand for its digital services has soared with 393 million digital visits and 98% of trades being done online. In FY21, 83% of its new clients were under 55, as the company saw younger clients showing an interest investing and saving, prioritising financial resilience as they benefit from the transition of wealth from older generations.

This has been an extraordinary year and I am proud of how its colleagues responded and continued to deliver to clients throughout this challenging period. Hargreaves Lansdown has not furloughed its people, enacted any COVID related redundancy programmes or sought any Government assistance.

The company's focus is, as always, on its clients and their lifelong needs, not just their short-term interests. Hargreaves Lansdown has been able to capitalise on this extraordinary year – and enlarge its client base substantially - due to its previous investment decisions and confidence in the opportunity ahead. As the UK’s market-leading digital wealth management service Hargreaves Lansdown has continuously advanced its service and broadened and strengthened its proposition, as client needs evolve, and the wealth market continues to broaden and digitise.

References

  1. ^ https://www.hl.co.uk/about-us
  2. ^ https://www.hl.co.uk/investment-services
  3. ^ https://www.hl.co.uk/investor-relations/results-and-presentations/interactive-reports/2021
Tags: GB:HL US:HRGLF
Created by Asif Farooqui on 2022/02/21 11:26
     

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