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Hargreaves Lansdown (LSE:HL) stocks are well represented in my portfolio. In fact, it is also my personal selection of investment platforms.
But the stock price has suffered in the past two years, since the height of the pandemic. And it is currently trading around 15 times earnings. I don’t think it’s particularly high, especially given the company’s long-term growth prospects.
So let’s take a closer look at this stock and explore why I think it might be undervalued.
More downward pressure
If you had bought £500 worth of Hargreaves Lansdown shares a year ago, today you would have around £380 plus around £20 in dividends. That’s clearly a pretty poor return on my investment.
The stock has gone up a couple of times, but over the course of the year it’s down 24%.
This is largely because the environment for private investors has deteriorated. We have a cost of living crisis and the stock market has shown considerable volatility. Combined with the reopening of the economy after Covid, Hargreaves has struggled to maintain its growth in the age of the pandemic.
bulls against bears
Okay, let’s start by looking at the main concerns some investors have about Hargreaves. First, there are questions about the long-term viability of the company’s fee-based revenue streams.
This is because some investment platforms have started lowering their transaction fees and could undermine Hargreaves, the UK’s leading investment platform.
In fact, in the US, charles schwab — a brokerage firm — has reduced commissions to zero. However, at this time, transaction fees only account for a small part of Hargreaves’ overall revenue generation.
Ongoing revenue, which generates more than 80% of total revenue, is comprised primarily of platform fees on funds and shares, fund administration fees, net interest income, and ongoing advisory fees.
As we can see, the transactional brokerage commission is not a big part of the business. It is perhaps something that could be given up in the future to attract more customers.
I would also say that the platform fees are really not enough to deter clients. This is 0.45% for ISA shares and units (limited to £45 per year), 0.45% for a self-invested personal pension (limited to £200 per year), 0.25% for a for life (capped at £45 per year) ). As of March, there are no fees in the Junior ISA.
interested in interest
What I find particularly intriguing is the company’s ability to earn interest on customer deposits. With interest rates at their highest since 2008 and forecasts for a mid-term sweet spot of 2% to 3%, Hargreaves could really thrive here. Net interest income could be worth more than £200m for Hargreaves this year.
Investors may also worry about the company’s ability to attract new customers in the future. Net new clients fell to 31,000 in the first half (as of December 31). However, I think the Bristol-based company is well positioned to benefit from a trend of Brits looking to take control of their investments.
So when it comes to Hargreaves Lansdown, I’m definitely a bull. And with a dividend yield of 5%, it’s an attractive addition to a passive income portfolio. That’s why I’m buying more.
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