Hargreaves Lansdown final results in line, looks forward to rate rise

3rd Sep 2014 08:01

- AuA up 29% to £46.9bn- Basic EPS up 9% to 34.5p, in line- Total dividend up 8% to 32pFinal results from Hargreaves Lansdown showed assets under administration were broadly in line but the company was optimistic about its ability to deal with new regulatory changes and added an extra dividend. On net revenues up 8% to £291.9m and pre-tax profits up 7% to £209.8m in the year to end-June, the FTSE 100 financial services group delivered earnings per share of 34.5p, up 9% on the previous year and in line with recently downgraded consensus estimates. Approximately 144,000 new clients signed up during the year, many from the Royal Mail flotation, with clients now totalling 652,000.Importantly, there was 43% growth in customers to 34,200 in the fourth quarter, post RDR phase II implementation, against the 24,000 added in the same period last year."During the year we have continued to expand and improve the services we provide to our clients whilst also dealing with major regulatory change," said chief executive Ian Gorham. "Hargreaves Lansdown has not only retained but furthered its market leading position."Total assets under administration swelled 29% at £46.9bn, versus forecasts of at least £48m, thanks to net new business inflows of £6.4bn and rising markets boosting performance.The board has increased the total dividend 8% to 32p per share with a second interim ordinary dividend and an increased special dividend. The largest direct investment company in the UK, with 32% of the market, Hargreaves has absorbed the 'Phase II' regulatory pricing changes of the Retail Distribution Review (RDR) and enjoyed a record third quarter and a 93.3% client retention ratio. In the short term the company has seen a reduction in annuity business of around 50%, but said this has been counteracted by a substantial shift to drawdown arrangements, with new assets into pensions drawdown arrangements up 35% on the year before. A notable effect of new regulation has been to "substantially" affect revenue from cash in the form of interest margin."We expect that in the short term our cash margin will reduce slightly but longer term these mitigating strategies should offset some of the effect," Gorham added. "If interest rates rise, we also expect this to have a positive effect on revenue."Broker Liberum, which has a 'sell' on the stock, noted that net income margin was down to 0.7% from 0.86%, highlighting the problem of severe margin pressure holding back EPS growth. The broker suggested that there "appears to be a tentative warning about the rate of dividend growth in coming years". House broker Numis noted that growth was limited due to the 43% decline in interest income due to the government's Funding for Lending scheme. On the regulatory effect, analysts said: "If customers were going to negatively react to the RDR II HL pricing model we believe there would have been clear evidence of it by now given their pricing was announced on 15th January with implementation on 1st March."After an initial fall shares were marginally higher in the first minutes of trading on Wednesday.OH