Shares digital

Hargreaves Lansdown (HL.) – Interims PTP: £26.7m (£20.5m) Divi: 3.1p (n/a)

The shares of the private client wealth manager have rallied since last week’s strong interims but questions remain as to whether it will make earnings forecasts against the backcloth of falling markets.

The company’s chief executive Peter Hargreaves has stressed he’s well positioned ahead of the key ISA season. Despite the markets, investors will continue putting cash into ISAs, says Hargreaves, if not into stock-based investments such as mutual funds.

But Daniel Havercroft, from independent broker Investec, believes the impact of the weak market on the funds under administration – and in turn earnings – probably can’t be escaped unless there is a dramatic reversal in market conditions between now and the year end.

Havercroft’s current earning forecasts are based on an assumption of £12.8 billion in assets under administration by the company’s 30 June year end, up from the half-year point’s £10.9 billion.

‘Markets are off about 8% since 31 December so, before attracting any new money, funds under administration are around £10 billion,’ comments the analyst. ‘Rather than having to attract £1.9 billion to make full-year forecasts they, have to attract £2.8 billion, which is obviously a totally different prospect.’

The corresponding impact on commission incomes puts in question Havercroft’s 2008 and 2009 EPS forecasts of 8.5p and 11.2p, he says. At the time of going to press, he was yet to adjust forecasts before discussing cost assumptions with management, but ‘unless we see a dramatic improvement in market levels’ he could not see how Hargreaves could escape downgrades, falling more heavily in 2009.

Shares says: It’s a well managed business and should do relatively well versus rivals this ISA season, but that doesn’t escape the fact that forecasts are too high.

by: Simon Keane