Online stockbrokers and wealth managers are seen as a geared play on stock market growth, rising and falling in line with market sentiment.
Ups and downs
These are not the only factors at play though. If they were, all investment platforms would perform roughly the same, and they don’t. For example, Hargreaves Lansdown (LSE: HL) trades 85% higher than it did five years ago, while Charles Stanley Group (LSE: CAY) has fallen almost 30%.
Last year, I said Charles Stanley was finally showing signs of recovery, and its stock is up 25% in the last four months. Today, it reported full-year results to 31 March and the share price remains unmoved at 320p. That’s despite a 6.5% rise in discretionary funds to £13.1bn, while revenues rose 2.8% to £155.2m, with growth in all divisions.
Out of breath
Its core business posted profit before tax of £11.6m, a rise of 6%, while pre-tax profit margins improved from 8.8% to 9.2%.
However, with reported profit before tax dipping from £11.4 to £11m, investors remain underwhelmed. The group also warned that “given the extent of the equity market rally earlier this year, we anticipate much more modest returns over the remainder of the year.”
It said the long-term prospects remain positive but “equities are likely to pause for breath until evidence of better economic growth emerges.”
Take your time
Charles Stanley has strengthened its balance sheet, boosting its cash position 23.7% to £81.2m, and lifting its regulatory capital solvency ratio from 177% to 214%. Management expects to incur £9.5m in restructuring costs over the next two to three years, which should yield annual savings of more than £4.5m from 2022 onwards.
CEO Paul Abberley said it’s now on track to deliver a medium-term profit margin target of 15%. However, given the downbeat outlook, there’s a pricey forecast valuation of 18.5 times earnings and okay-but-not-great yield of 3.5%, I’m in no hurry to buy.
Only way is up
Charles Stanley is a £160m minnow compared to £10.5bn FTSE 100 big fish Hargreaves Lansdown. If you’re kicking yourself for not buying Hargreaves Lansdown stock a few months ago, you’re not the only one. It took full-blooded advantage of the year’s surprise stock market recovery to climb almost 40% in a matter of months.
Hargreaves keeps on growing. In the year to 30 April, it won net new business of £2.9bn, attracted 55,000 new clients to lift its total to 1.19bn, and boosted revenues 8% to £395.9m. CEO Chris Hill shrugged off political and macro-economic uncertainty to claim “we are well positioned to deliver attractive growth.”
As you were
City analysts expect Hargreaves Lansdown to post another 4% earnings growth this year, then 10% in the year to 30 June 2020. That will lift the yield to 2.4%, which may appear low, but this is partly due to strong share price growth as management has been progressive. The big concern is it trades at a whopping 36 times earnings, although that’s lower than last year’s 45 times.
The group also enjoys a massive 75.3% return on capital employed. Betting against the Hargreaves Lansdown share price has been a losing play for a decade. The question is, are you are prepared to pay a premium price?
