Numis downgrades client Hargreaves Lansdown

Despite seeing material long-term potential from the structural shifts in the pensions market, Numis downgraded its recommendation on Hargreaves Lansdown to 'hold' from 'buy'.

On Wednesday Hargreaves reported interim results that showed pre-tax profit up 21% to £131m on 16% revenue growth.

This was 10% ahead of the broker's estimate of £119m and beating the consensus forecast of £121m due to better than expected cost control and the higher revenue.

Analyst James Hamilton said the 13% in assets under administration left it a little behind his forecast of £70.8bn and while net inflows were strong at £2.3bn they were short of the £2.9bn he expected.

Nevertheless he upgraded full year earnings per share forecasts 6% to 43.4p from 40.9p and 49.5p from 46.8p for 2018.

HL has delayed the launch of their savings business until at least October 2017, though management and the broker continue to see this as a "significant opportunity for growth", though the delay is said to be due to "wanting to provide customer satisfaction upon launch as opposed of speed to market given they have no competitors in this space".

For the medium- to long-term Hamilton said the shift to defined contribution (DC, retail) pension from defined benefit (DB, institutional) pensions and the move to self-investing "provide two structural growth opportunities for HL" that he equates to a potential 15% compound EPS growth "for a generation".

"With the structural growth in self provision, online investing we continue to believe that HL deserves a substantial premium valuation," the analyst said.

But while the target price was lifted to 1,497p from 1,458p the recommendation was moved down.