Jefferies downgrades Hargreaves Lansdown to 'hold'

Jefferies downgraded Hargreaves Lansdown on Monday as it initiated coverage of St James’s Place at ‘buy’.

The bank cut HL to ‘underperform’ form ‘hold’ and slashed the price target to 820p from 1,100p.

It gave two main reasons for the downgrade. Firstly, it argued that as the children of the 1960s approach retirement, they are likely to move from being natural clients of HL to needing advice and therefore leaving the platform in growing numbers.

Secondly, Jefferies said it was applying the same valuation methodology to both companies, reducing its long-term growth rate. "This brings our valuation down to 820p and our rating to underperform," it said, adding that there is still a lot going for HL. It noted that Hargreaves has a large and growing customer base and is successfully attracting a younger clientele.

"Being less wealthy, younger clients will not be as profitable as the older ones we think are leaving, but we believe HL/ is still likely to achieve 50% operating margins (management targets 55% in the medium term).

Jefferies said that although HL has an advice offering and is extending it, the likes of St James’s Place "are better placed to take advantage of the trend".

At 1550 GMT, HL shares were down 3.5% at 1,035.50p, while STJ shares were 0.3% lower at 1,472.50p.