Hargreaves Lansdown - Woodford effect

HL has taken a significant hit with all the news surrounding Neil Woodford’s equity income fund issues, dropping 23% ish from its peak in May.
However, I don’t really see a shift in their fundamental business after this news; there will be some outflows but not significant enough to justify this drop, and certainly there has been no requisite uptick in AJ Bell shares who could be seen as their closest equivalent. While there is worry about fines regarding wealth 50 and relationship with woodford, there is no obvious legal breach here to hang a case/fine on - its basically poor active management.

Therefore, have HL’s shares been hit based off sentiment and not from a fundamental perspective? They are still pricey, with a PE of about 37, but a lot less than they were a month ago.

How would a person justify buying at such prices?

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I usually like to wait a good few months after bad news - its my experience it just keeps coming. However, it is difficult to see how HL would lose too much out of this long term. I’m going to wait another month and see before I dip in, but it is one to watch.

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I had a spare £20 in my account so picked up one HL share! Let the recovery begin! :smiley:

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I think there are a potential number of worms to come out. Since they shortened their list to just 50 and one of them has practically gone pop it raises concerns. There has already been suspicion as to how or why certain funds get picked. If it transpires that Woodford was best mates this could end up being terrible PR. HL has to appear neutral. Their own fund mixes are obscenely expensive and are now vulnerable to a sell off. A lot of investor will be hovering over the sell button.

I imagine the sharky shorters have been in a frenzy over it. I would expect it to take another nose dive when something else comes out and then trundle down a bit more yet.

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It’s also an issue that Woodford makes up a large amount of fund holdings in the HL user base. Lots of brokers have made an effort to promote different funds as it’s a concentration risk for them as well! They can’t charge fees on something that is suspended or you lose your money and leave the platform.

I have no doubt HL will recover, I’m sure it’s knee jerk reaction right now which has giving fire to other people to sell as it triggers their stop losses.

To give some context HL shares are still 6% up from where they were 3 months ago.

Burford Capital is also a Woodford stock I hold that has taken a knock.

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Is there any data as to what % his funds are for investors on HL’s platform?

Hargreaves Lansdown customers held around £1.7 billion in both the Equity Income and Income Focus funds at the last count.

I believe their investor documents sometimes list popular investments and from memory they do have a woodford concentration. Also the HL model portfolios use woodford funds too!

https://www.hl.co.uk/news/articles/hl-multi-manager-funds-how-does-the-woodford-suspension-affect-your-investment

The total invested in Woodford Equity Income is just 6.2% of the total value of our Multi-Manager funds. It is held in six of our portfolios – Balanced Managed, Special Situations, Income & Growth, Equity & Bond, UK Growth and Strategic Assets. The weighting in these portfolios varies dependent on the portfolio, from 2.6% to 12.4%, as at 7 June 2019.

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Ok that’s useful, they have in the region of £85.9bn AUM, so 1.9% assets in Woodford funds then. Excluding Patient Capital.

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Going for a small buy in myself. This media circus will blow over, and then we’ll all remind ourselves that HL is a money spinner. Take a look at their financials, 50%+ margin, growing revenues yoy. Wealth 50 might have to be more transparent in the future, can’t see any major outcome from FCA interest.

I’m just curious about the thought process, if you’ll indulge me… even if the financials are great, aren’t there other companies out there you could make more money off?

If the PE is about 37, you might expect to make about a 3% return in the next few years. Do you think the earnings will keep growing to such an extent that your own purchase price to earnings will drop below 20 within the next decade? Or is there some other reasoning behind this?

There is absolutely other reasons. I’m buying the fundamentals at a time when people are selling the sentiment - my only aim here is a small play-money grab on a share I expect will recover from a temporary, media-fed drop.

So do you intend on selling once the price goes back up to where it was before? Or hold on for the medium to long term and perhaps get 3%? Or is there another likely scenario you envisage where you do better than 3% outside the short term?

Where is 3% coming from?

Just a rough estimate based on 1/PE.

Yep why I am staying out for now. I want a bigger growth potential. Its spiked massively in April and its lost that. If there is no more bad news then itll slowly rise and I’m not bothered.

In terms of buying HL while it’s low, I’m not attracted to them.

Yes they have great growth in terms of revenue and new features but they are a giant beast. They are slow moving and keep expanding the revenue lines, which is great to diversify but I don’t see any knockout upcoming announcements. They will plod along and keep expanding the same pace always.

They have had a banking licence for almost four years now and done nothing with it, they have barely expanded into the cash saving space in their attempt to win customers at an earlier stage.

You can buy them at the low now but I don’t see them jumping back up. They’ll just slowly increase over time as they always do until the next big news breaks and they take a hit. I like growth and these guys aren’t going to give it to me.

In terms of the UK financial sector I am holding Aviva right now (they took a big hit with the CEO issues and they are recovering from that.) So I wouldn’t want to hold another UK financial firm (they are different businesses but still.)

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