Train ‘aggressively’ ups Hargreaves stake after dismissing margin pressure fears
The platform was Train’s top holding within his £1.1bn Lindsell Train UK Equity fund at the start of the year. But Hargreaves shares have had a torrid time, falling 27 per cent year to date to trade at 993p by Friday’s close.
Investors have sold off the stock on concerns that since HL’s clean pricing structure, introduced in Q1, could lead to contracting margins at a business which was valued at over 30x earnings.
However, Train has taken advantage of the shares’ drop below the £10 mark in August and September to boost his exposure once again.
“We have been buying Hargreaves Lansdown again,” he said.
“We did not buy any in the second half of 2013 or the early part of 2014 but, once the price fell below £10, we began buying aggressively. The fall reduced the holding size, so I have looked to rebuild that through purchasing more of the stock.”
Lindsell Train now owns more than 13.2m Hargreaves shares, up from 11.25m at the start of the year.
“There is no sign of margin pressures emerging – that is just market conjecture,” Train said.
“It is what people say is going to happen but, in the latest figures, margins went from 73 per cent to 72.5 per cent.”
Analysts have also been concerned about the impact of low interest rates on the platform’s client cash holdings.
In September, when it unveiled full-year results, HL said the interest revenue margin it earns on some £4bn of client cash held on the platform had fallen from 185bps in its 2013 financial year to 70bps at the start of its 2015 financial year.
In its interim results, released in October, HL said the low interest rate environment would continue to hit revenues until the end of the year.
Train said: “I do not think HL can do anything to deal with them – interest rates should be factored into the business plan as they can be expected to fluctuate.
“The valuations of financial institutions should not rely on interest rate expectations as they are not controlled by companies, nor are they value added.”
Instead, Train said any margin squeeze would be only temporary, and the platform has scope to grow its business and client functions to compete with the banks.
This is despite Hargreaves having ruled out applying for a banking licence in order to improve interest margins.
“Technology is disintermediating banks, providing a serious existential threat over the next couple of decades. Smaller businesses like Hargreaves Lansdown will begin to take on banking functions and do them better,” Train said.