I have written recently about St James's Place (STJ) and its toxic culture but it is time to think about a company with potentially even bigger problems...and that is Hargreaves Lansdown (HL.). In financial services the biggest issues always come when credibility and reputation come under pressure...
At the above link I discussed how both current and prospective investors with St James's Place suddenly had a bunch of new questions to ask (and hence reasons either not to invest or to aggressively question ongoing fees). And for Hargreaves Lansdown we can start to guess at some of the static effects from its sustained love-up of the Neil Woodford empire. As Tom W and many others on this website have noted on multiple occasions 'it earned tens of millions persuading more than 130,000 of its clients to buy units in Woodford funds'.
Now I see one member of the deadwood press said that HL is facing a loss of about £1.9 million in fees due to £250 million worth of redemptions from its own products and funds since the infamous Woodford Equity Income Fund was initially suspended. That is not good...but if you are making over £300 million of profit a year (as the company announced in August), you can take that on the chin – especially if this month's trading update noted in the last quarter net new business of £1.7 billion and 35,000 net new clients. But...but...all this is just static. The dynamic aspects are still to even just mildly play out.
When the company's co-founder (and still a material shareholder but no longer an executive with the business) Peter Hargreaves accuses Woodford of running an investment operation 'probably inadequate for purpose', he must wonder about his old firm too. The scope not just for more lost clients and greater fee analysis as the oxygen of publicity hits but also direct fines as the regulators surely cannot let the company get away with just observing (as per August's full year report) that 'we will learn from this and continue to improve our processes, transparency and governance, to ensure we provide the best client outcomes'.
Now this will play out over time but the stock market discounts the likely future. An £8 billion+ market cap means the market is paying over a x20 earnings multiple for all the above. Yes, the company has market leading direct-to-consumer and execution-only market shares but this is far from a value stock. As the dynamic effects of the Woodford scandal develop, expect the Hargeaves Lansdown share price to go lower. Twenty four quid to seventeen quid and change sounds shabby but this is just the end of the beginning...not the beginning of the end. And quite rightly so.
Filed under: Hargreaves Lansdown, Woodford, Verseon, Nexus Infrastructure, Itaconix, Whitbread
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