BofA Merrill Lynch ups Hargreaves Lansdown to 'buy'

Bank of America Merrill Lynch upgraded Hargreaves Lansdown to ‘buy’ for the first time on Monday as it said the company’s gearing to rate rises and potential benefits from increased engagement in share trading are underappreciated.

The bank, which lifted its recommendation from ‘neutral’, said its forecasts sit 5- 21% above consensus, largely due to its reflection of Bank of England base rates increasing to 75 basis points by year-end.

BoA said its strategists forecast BOE base rates increasing from their current level of 25bps to 50bps on 3 February and 75bps in November. "This has led to a 17% boost in our EPS forecasts by FY24E, as cash margins increase from 19bps in FY22E to 72bps in FY24E.

"We do not allow for any further hikes beyond 2022 and believe much of the benefit of further hikes would be passed to customers. Higher bank account rates could, in time, also make Active Savings profitable."

The bank upped its price target on HL shares to 1,625p from 1,475p to reflect the benefit of rate increases and implying around 30% total return potential.

BoA said also share trading frequency trends are not appreciated. "Share trading frequency spiked during Covid, particularly during lockdowns," it noted.

"These levels will likely not repeat, but share trading frequency was already on an increasing trend, which we think is underappreciated.

"Increased international (particularly US) share trading is also more profitable and should continue, in our view. Charges remain high relative to peers, but we believe HL’s ease of use is underappreciated. We think share trading revenues could positively surprise."