Berenberg lowers target price on Hargreaves Lansdown

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