When Chris Hill became chief executive of Hargreaves Lansdown in February, he probably didn’t expect, in a few months, to have to tell investors that, for the first time since the 2007 float, they would not be paid a special dividend. The company softened the blow this month by releasing figures for its financial year to the end of June that showed continued growth in customer numbers and funds under management — an “asset-gathering monster” is how one analyst describes the company.
Because of its strong cashflow, Hargreaves has tended to pay 65 per cent of attributable profits as ordinary dividends and then top this proportion up to 90 per cent or beyond by means of a special payment. There is nothing sinister in its axing. The regulators have taken the view that the company’s fast growth over the years has raised the surplus capital that needs to be set aside and the £50 million saved by not paying the special dividend makes up this shortfall.
This year, therefore, there could be a return to special payments, even if a degree of caution is understandable and the total of future payments may be nearer 85 per cent. Ordinary dividends for the year are up by 20 per cent, reflecting growth in revenues and earnings.
Assets under administration rose by 28 per cent to £79.2 billion. Of this, £6.9 billion was new business gained, two thirds of this in the second half. This is generally ahead of the first six months and there was also the benefit of new products, such as the Neil Woodford fund, and increased investor confidence.
Hargreaves has 30 per cent of the market in retail stockbroking and 38 per cent of that conducted on platforms. It continues to gain from those rising revenues and better margins as more business comes through, these improving over the year by one basis point to 68 per cent. Pre-tax profits were ahead by 21 per cent to £265.8 million.
The question is how long such growth can continue. The company will enter the cash savings market by the end of the year, when its product that directs customers to banks is launched. Clouds on the horizon include Vanguard’s platform that comes in next spring and the pending review by the Financial Conduct Authority of platform trade.
The shares, barely affected by the dividend cut, slipped 11p to £13.52 and sell on 26 times earnings. They remain a good long-term prospect.
My advice Buy
Why The shares are, and always have been, highly rated but this reflects a commanding position in a market that can only grow
Rockhopper Exploration
It is hard to know how much value the stock market is assigning to Rockhopper’s 40 per cent stake in the Sea Lion project in the Falklands. Not much, plainly. The shares, off ½p at 18½p after an update on its Egyptian assets, are as low as they have been since 2009, when the Falklands project was little discussed. The company, at one time a favourite with retail investors, also has appointed Peel Hunt as joint broker, although it looks unlikely that any fundraising is in prospect.
Rockhopper has been looking elsewhere since the 2014 purchase of Mediterranean Oil & Gas. The news from Egypt, bought last year, is not all good. Production is stable enough and further payments have been received out of the maybe $4 million it is owed by the authorities. However, one exploratory well came up with “water wet” sand, though there is the prospect of further reserves deeper down.
The company is also producing off Italy, but Ombrina Mare, the big field in the Adriatic, is the subject of lengthy legal action with the Italian government, which has banned exploration there.
Rockhopper is the ultimate speculative oil and gas investment, but only for those prepared to be very patient.
My advice Avoid
Why Probably too early to start buying the shares
H&T Group
In 1897 Messrs Harvey and Thompson set up a pawnbroker shop in Vauxhall, south London. Now, 120 years later, the company is having to look at new ways of doing business. One is using online visits to drive customers to its shops for loans or to buy secondhand watches; another is a growing personal loan business.
This last should be a benefit. H&T serves much the same customers as payday lenders and, as the less scrupulous of these are driven out of business, it should send trade the company’s way. The core pawnbroking market remains competitive, though, with plenty of independent operators out there.
The halfway figures show progress on all fronts, even if the contribution from pawnbroking was up by a muted 4 per cent year-on-year. The increase in the gold price was the main driver, allowing it to lend more. The personal loan book grew by 87 per cent to £11.8 million, a fairly low figure that gives scope for growth with plenty of balance sheet support to fund it. Retail sales boosted profits by 23 per cent, which was pretty good given the conditions elsewhere in the high street. That progress across all fronts meant that pre-tax profits were up from £3.7 million to £6 million.
The shares were exceptionally strong after the European Union referendum, presumably as analysts assumed that economic uncertainty would be good for business, and they are little changed on a year ago, up 17p at 285p after the latest results. They sell on 11 times earnings, which looks decent value.
My advice Buy
Why The long-term growth looks solid enough
And finally . . .
Georgia Healthcare is one of several businesses from that Caucasus country that have listed in London, including Bank of Georgia, its shareholder, which floated the shares in late 2015. They have not done badly, having more than doubled since March last year. The latest halfway figures are a bit of a mixed bag, affected by changes to how patients pay for its services, but the company continues to add new hospitals in areas where there is less access to healthcare. Numis says GH is well placed to meet growing demand for its services.
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