UBS starts coverage of Hargreaves Lansdown with a 'sell' rating

12th Aug 2014 11:21

Shares in financial services group Hargreaves Lansdown were under pressure on Tuesday after UBS initiated coverage of the stock with a 'sell' rating, saying that the "risk-reward [is] significantly skewed to the downside".The bank set a 850p target price for the stock, which implies downside from the 1,081p closing price on Monday.It believes that at current prices, the market "significantly overestimates" the flow potential at Hargreaves Lansdown."To drive the earnings growth that would take Hargreaves Lansdown to a 'normalised' 20 times price-to-earnings multiple from 29 times 2015 estimates at present, we estimate the company's flagship Vantage platform has to draw in 25% net flows each year over a three-year time horizon," UBS said.The bank believes this acceleration "looks challenging" given that Vantage's growth in assets under administration from net new business inflows was 20% in 2013.UBS said that the bulls' investment case at Hargreaves Lansdown lies on an "advice gap" having been created by the Retail Distribution Review, "where a mass-market population no longer has access to financial advice and chooses to invest through Hargreaves". However, the company's ability to take advantage of this is uncertain given falling adviser numbers and subdued client growth, the bank said.The stock was down 2.9% at 1,049.88p by 09:52 on Tuesday.BC