Numis upgrades Hargreaves Lansdown to 'buy'

7th Aug 2014 11:31

Numis Securities has upped its rating for Hargreaves Lansdown (HL) from 'hold' to 'buy', playing down recent concerns about the impact on the financial services group from the Retail Distribution Review (RDR).The broker said that its upgrade follows a period of share-price weakness, with the stock having fallen by nearly a quarter since the start of 2014.Numis said that HL's revenue model has been "fundamentally altered" by the so-called 'RDR II'. with many expecting the company's business model and top line to come under increasing pressure.However, the broker believes that HL "has a very strong market position in a market that is experiencing structural growth". Ahead of HL's annual results on 3 September, Numis reckons that few customers will have left - despite analysts' concerns - and that the business model "remains robust with the group's superior customer service and best-in-market unit pricing serving as powerful drivers for customers"."Hargreaves Lansdown dominates the rapidly-growing direct-to-retail wrap platform market. It is benefiting from the structural pensions shift to defined contribution (a retail product) from defined benefit (an institutional product) where self-investment is growing its market share."As the direct-to-retail platform markets moves from being a niche market to a mass market, margins will likely compress. However, Numis said: "Scale is key to platform businesses, and none come close to matching Hargreaves Lansdown."The target price for the shares has been trimmed slightly from 1,263p to 1,220p.The stock was 0.7% higher at 1,040p by 11:11 on Thursday.BC