Hargreaves Lansdown rallies on bullish Barclays, ShoreCap notes

Hargreaves Lansdown rallied on Friday as Shore Capital upgraded the shares to ‘buy’ and Barclays reiterated its ‘overweight’ rating.

Barclays said the de-rating of the stock was "excessive" as the market focuses to a too-great extent on the interest rate cycle effects on revenues at the expense of potential positive surprises that may emerge in activity and also from stronger markets.

"While other investment platform stocks have seen valuations retain stable price-to-earnings ratings or even increase, HL has seen a de-rating that has left it at a circa 15% discount to its longer-term valuation," the bank said.

"We raise our FY21 revenue and earnings per share estimates to reflect the recent stronger markets and the Barclays Spend Trends 2.0 activity indicators but trim our FY22 and FY23 estimates to reflect the ongoing low LIBOR rates."

Barclays cut the price target to 1,925p from 2,010p.

Meanwhile, Shore Capital said that given the rise in markets in the fourth quarter, and the continued elevated retail share dealing that this catalysed, it has materially upgraded forecasts for the stock and lifted its recommendation from ‘hold’.

"With most major equity indices up over 10% in the three months to 31st December (including the FTSE-AllShare up 12%), we expect a strong contribution from market movements to HL’s assets under administration in the quarter," it said.

"We would also expect the buoyant markets to have re-stimulated an already elevated level of share dealing activity in the period, boosting the revenue yield in HL’s shares category (c35% of total AuA).

"We think there is a more permanent aspect emerging to these favourable market conditions, enhancing HL’s ability to convert the surge in new ‘trading’ clients into ‘investing’ clients, making use of ISA and SIPP wrappers. This creates more of an annuity revenue stream once the sugar rush of dealing commission calms down."

The broker lifted its fair value to 1,850p from 1,625p and its June 2021 and 2022 EPS estimates by 12% and 10% respectively.

At 1230 GMT, the shares were up 4.8% at 644.50p.