The Lemon Fool

HL has been the the worst performing stock I own. But I can't help but think this is entirely due to unjustified downgrades and the current share price and valuation makes it one of the best bargains in the FTSE right now.

You have a highly cash generative business that is still on a growth trend (2022 aside), yet valued at a frankly ridiculous 11x earnings. It's the same business that people were very willing to pay 20-25x earnings for just a couple of years ago. Now pays a nice standard 5.8% dividend, of course well covered.

Could also be a potential beneficiary if this "pot for life" policy becomes a reality.

Thoughts?

Cripes. I just checked on the long term chart and it's not just at a 52 week low. Hit this price at the start of 2013 and hasn't been there since until now!

vand wrote:Cripes. I just checked on the long term chart and it's not just at a 52 week low. Hit this price at the start of 2013 and hasn't been there since until now!

ISTR 2013 was when the trailing comission was abolished which resulted in quite a shakeup of advisor and platfrom fees.

Paul

vand wrote:HL has been the the worst performing stock I own. But I can't help but think this is entirely due to unjustified downgrades and the current share price and valuation makes it one of the best bargains in the FTSE right now.

You have a highly cash generative business that is still on a growth trend (2022 aside), yet valued at a frankly ridiculous 11x earnings. It's the same business that people were very willing to pay 20-25x earnings for just a couple of years ago. Now pays a nice standard 5.8% dividend, of course well covered.

Could also be a potential beneficiary if this "pot for life" policy becomes a reality.

Thoughts?

I did suggest, on the HL Wobbles thread, some reasons for the market not being keen on HL shares.

"They are still ridiculously profitable but that is going to change due to the constant pressure on fees. They don't have an unassailable 'moat', so they will have to continue cutting fees. Also much of their current profitability comes from the high interest they receive on clients' cash. That too will fall as interest rates fall and the authorities push them to give clients more of the interest under fairness rules.

Lastly there is still the possibility of having to pay compensation re the Woodford scandal.

These are among the reasons the shares are heavily shorted at present (per the Investors Chronicle), IMO."

Many valid points, but the reason for the price weakness is quite simple - all financial platforms have fallen because people are not trading as much as they were, particularly over the peak Covid period. This always happens in bear markets. If you compare with AJ Bell (AJB), IG Group (IGG) and CMC Markets (CMCX) you will see even worse falls in share price. HL has the best relative strength over the past year of the four companies i.e. it has underperformed the FTSE All Share the least (by ~15%).

IMHO if you are taking a long term view and prepared to wait for the next bull market, all four companies look good value to me. Indeed, CMC is even trading at a discount to Tangible Book - a full on PYAD share. FWIW the only one I don't own currently is AJB, but I am considering starting a holding there too as it heads back towards its IPO price.

My rummaging in HL was too early!

monabri wrote:My rummaging in HL was too early!

Yes, me too. That's life, not my best ever decision. My cost price is a smidge over £10 currently. HL and IG are now part of my recently formed High Yield Portfolio

simoan wrote:Many valid points, but the reason for the price weakness is quite simple - all financial platforms have fallen because people are not trading as much as they were, particularly over the peak Covid period. This always happens in bear markets. If you compare with AJ Bell (AJB), IG Group (IGG) and CMC Markets (CMCX) you will see even worse falls in share price. HL has the best relative strength over the past year of the four companies i.e. it has underperformed the FTSE All Share the least (by ~15%).

IMHO if you are taking a long term view and prepared to wait for the next bull market, all four companies look good value to me. Indeed, CMC is even trading at a discount to Tangible Book - a full on PYAD share. FWIW the only one I don't own currently is AJB, but I am considering starting a holding there too as it heads back towards its IPO price.

With their client base and expertise these companies are also attractive take-over targets. Slightly different beast but Brewin Dolphin was gobbled up fairly recently for a healthy premium.

I have IGG already but as and when new cash appears I may add one of the others, probably HL.

BoE

Thanks for heads up, whilst I tend to more add/top up ITs these days I do also add odd chunks of individual shares that I think have latent value as well as an acceptable yield, Hargreaves seems to fit the bill. So small purchase today, maybe another in say a month and then another the month after etc.

Whilst I doubt I will build a whole holding HL could readily become a 50% holding by March using dividends due by then.

My more recent single company punt, Springfield, although no more divs for the time being, has at least nearly price recovered, so another single company investment now seems nearly justified, though with my recent track record probably spells kiss of death.

HL is now 30% of peak.
AJB is now 50% of peak.

I use both and have a slight preference for AJB as I prefer their website. I don’t hold either.

Best wishes,

Steve

scrumpyjack wrote:

vand wrote:HL has been the the worst performing stock I own. But I can't help but think this is entirely due to unjustified downgrades and the current share price and valuation makes it one of the best bargains in the FTSE right now.

You have a highly cash generative business that is still on a growth trend (2022 aside), yet valued at a frankly ridiculous 11x earnings. It's the same business that people were very willing to pay 20-25x earnings for just a couple of years ago. Now pays a nice standard 5.8% dividend, of course well covered.

Could also be a potential beneficiary if this "pot for life" policy becomes a reality.

Thoughts?

I did suggest, on the HL Wobbles thread, some reasons for the market not being keen on HL shares.

"They are still ridiculously profitable but that is going to change due to the constant pressure on fees. They don't have an unassailable 'moat', so they will have to continue cutting fees. Also much of their current profitability comes from the high interest they receive on clients' cash. That too will fall as interest rates fall and the authorities push them to give clients more of the interest under fairness rules.

Lastly there is still the possibility of having to pay compensation re the Woodford scandal.

These are among the reasons the shares are heavily shorted at present (per the Investors Chronicle), IMO."

I think we probably underestimate how poor most private investors are... in a world of perfect investor behaviour turnover is much lower, but we don't live in that world, and if anything the opposite is true; investors are continually chasing performance and turning over their holdings more than ever before. This benefits HL as they make their money through turnover, especially on exchange traded instruments.


And I don't buy the argument that it's because they are less profitable due to a race-to-the-bottom price war amongst platforms and falling volumes - the financials show the growth is there, although granted, 2021 was a blowout year that has yet to be surpassed.

I think that, rather, there is a perception that with Vanguard moving in the SIPP space everyone is just going to transfer everything over to Vanguard - again, while I am sure there are those who only have a Vanguard platform and nothing more, I don't see Vanguard wiping everyone else out just because they are 0.1% cheaper.

Hargreaves Lansdown PLC (HL) – Income 2008 to 2023

Ordinary Dividend growth over time

Year End  | Dividend | 1 Year | 3 Years | 5 Years | 10 Years
30-Jun-08 |   5.4850 |        |         |         |         
30-Jun-09 |   7.2940 | 32.98% |         |         |         
30-Jun-10 |   8.5800 | 17.63% |         |         |         
30-Jun-11 |  12.9100 | 50.47% |  33.02% |         |         
30-Jun-12 |  15.7500 | 22.00% |  29.25% |         |         
30-Jun-13 |  20.6800 | 31.30% |  34.08% |  30.40% |         
30-Jun-14 |  22.3900 |  8.27% |  20.15% |  25.15% |         
30-Jun-15 |  21.6000 | -3.53% |  11.10% |  20.28% |         
30-Jun-16 |  24.1000 | 11.57% |   5.23% |  13.30% |         
30-Jun-17 |  29.0000 | 20.33% |   9.01% |  12.99% |         
30-Jun-18 |  32.2000 | 11.03% |  14.24% |   9.26% |   19.36%
30-Jun-19 |  33.7000 |  4.66% |  11.82% |   8.52% |   16.54%
30-Jun-20 |  37.5000 | 11.28% |   8.95% |  11.66% |   15.89%
30-Jun-21 |  38.5000 |  2.67% |   6.14% |   9.82% |   11.55%
30-Jun-22 |  39.7000 |  3.12% |   5.61% |   6.48% |    9.69%
30-Jun-23 |  41.5000 |  4.53% |   3.44% |   5.21% |    7.21%

As well as the above Ordinary dividends there have been almost annual Special Dividends which, when added to the Ordinary Dividend, give the following Income history.

Ordinary + Special Dividend growth over time

Year End  | Total   | 1 Year  | 3 Years | 5 Years | 10 Years
30-Jun-08 |  7.8090 |         |         |         |         
30-Jun-09 | 10.1010 |  29.35% |         |         |         
30-Jun-10 | 11.8800 |  17.61% |         |         |         
30-Jun-11 | 18.8700 |  58.84% |  34.19% |         |         
30-Jun-12 | 22.5900 |  19.71% |  30.77% |         |         
30-Jun-13 | 29.5900 |  30.99% |  35.55% |  30.53% |         
30-Jun-14 | 32.0000 |   8.14% |  19.25% |  25.94% |         
30-Jun-15 | 33.0000 |   3.13% |  13.47% |  22.67% |         
30-Jun-16 | 34.0000 |   3.03% |   4.74% |  12.50% |         
30-Jun-17 | 29.0000 | -14.71% |  -3.23% |   5.12% |         
30-Jun-18 | 40.0000 |  37.93% |   6.62% |   6.21% |   17.75%
30-Jun-19 | 42.0000 |   5.00% |   7.30% |   5.59% |   15.32%
30-Jun-20 | 54.9000 |  30.71% |  23.71% |  10.72% |   16.54%
30-Jun-21 | 50.5000 |  -8.01% |   8.08% |   8.23% |   10.34%
30-Jun-22 | 39.7000 | -21.39% |  -1.86% |   6.48% |    5.80%
30-Jun-23 | 41.5000 |   4.53% |  -8.91% |   0.74% |    3.44%

All looks pretty good to me - Ordinary Dividend increasing year on year (bar one year), and multiple Special Dividends thrown off as well.

Where is the problem?

Enjoy!


Ian

5th highest shorted UK company.

https://shorttracker.co.uk/companies/?sort=2&d=desc

simoan wrote:Many valid points, but the reason for the price weakness is quite simple - all financial platforms have fallen because people are not trading as much as they were, particularly over the peak Covid period. This always happens in bear markets. If you compare with AJ Bell (AJB), IG Group (IGG) and CMC Markets (CMCX) you will see even worse falls in share price. HL has the best relative strength over the past year of the four companies i.e. it has underperformed the FTSE All Share the least (by ~15%).

IMHO if you are taking a long term view and prepared to wait for the next bull market, all four companies look good value to me. Indeed, CMC is even trading at a discount to Tangible Book - a full on PYAD share. FWIW the only one I don't own currently is AJB, but I am considering starting a holding there too as it heads back towards its IPO price.

AJB...up 14% today. Someone is listening!

monabri wrote:AJB...up 14% today. Someone is listening!

Ah, beat me to it. I came to find this thread to make the same point. For HYPers AJB now has a yield of 4% and 5 years of dividends, so we can take a view that gives us 5 years of increasing dividends if we look to forecasts. Mostly been lower yielding but for a few months has been above FTSE100. I own some AJB but a fairly small slug, never been part of my HYP, I bought them in my AJBell account when they floated.

It's a very volatile stock, isn't it?

That probably prevents me from holding more than I already do.

Has had a good bounce in the few week, but wouldn't surprise me if it got smacked back down tomorrow on some flimsy analyst downgrade.

So far any concerns about HL's buiness model or that competitors would eat into their growth and profitability have proven unfounded, as the last set of results show the business itself is doing very well.

I see that Hargeaves Lansdown has dropped from 2nd highest shorted UK company to 7th, just below abrdn.

Looking at HL's chart, it certainly looks as though it might be becoming "buyable". A TA person would like to see a fall to a higher bottom to be established, then there's a nice formation with potential upside.

The fact that the share is also on a good yield and "hypable" at the same time as the chart is beginning to look ripe is a rare occurrence. Naturally, it may not follow through!


Arb.

I liked the prospects of HL back in 2015 so bought some, added in 2016 and 2017. The dividend had a good history but even with the specials a bit of a stretch to see them as high yield. In 2017 they cut the dividend and ditched the fairly regular special too. Cut in 21, cut in 22. The specials came back from in 2018 - 2021.
Rough estimate, I have had in dividends an equivalence to reduction in share price.

[OT]

Arborbridge wrote:Looking at HL's chart, it certainly looks as though it might be becoming "buyable". A TA person would like to see a fall to a higher bottom to be established, then there's a nice formation with potential upside.

Nice to see a bit of TA on this board. LOL.

Seriously though, agree on your reading of the chart. Would seriously consider buying some of these if I weren't so focused on "selling in May" -- at least I'm reducing leverage and paying down a bit of debt which has been costing me 7%pa, mainly funding margin, plus the carry on the futures/forward positions I've been holding. I'm happy to have taken on the leverage because it's helped keep me fully invested in the cash portfolios too.

But yes, definitely a share to look at buying if it drops back to this sort of level in a few months.

GS