Berenberg lowers target price on Hargreaves Lansdown

Analysts at Berenberg lowered their target price on financial services company Hargreaves Lansdown from 1,250.0p to 925.0p on Friday, stating there were "few tailwinds to fight near-term headwinds".

Berenberg said Hargreaves Lansdown has faced 10% consensus revenue downgrades year-to-date, excluding cash revenue, and has derated by 30% to a 16.0x full-year 2023 price-to-earnings ratio.

The German bank, which also reiterated its 'hold' rating on the stock, highlighted that this represents a 40% discount to long-run average multiples.

However, Berenberg also believes there to be "limited near-term catalysts" that could materially reverse this performance, partly due to the uncertain macroeconomic and consumer confidence outlook, and the benefits of HL's back-end-loaded cost programme.

"HL earns revenue on client cash. In FY 2020 this equated to a 74bp margin and 17% of revenues. Cash margins are expected to trough in FY 2022 at 30-35bp. As Blomberg consensus expects UK rates to increase to c200bp by end-2023, total revenue should be supported by higher cash revenue, thus partly offsetting lower performance and lower activity headwinds. Consensus expects a 29bp FY 2022 cash margin, rising to 85bp in FY 2024. This implies c50-60% deposit betas," said the analysts.

"We cut our EPS by up to 20% due to lower activity and performance. We believe that, during periods of uncertainty, flows that are more tax-wrapped and less discretionary are likely to be less volatile than those that are not. As such, we prefer St. James's Place to HL."

Reporting by Iain Gilbert at Sharecast.com