Image Alt

The Investing Box

  /  Editor's Pick   /  Is Hargreaves Lansdown the most undervalued stock on the FTSE 100?

Is Hargreaves Lansdown the most undervalued stock on the FTSE 100?

Black woman using loudspeaker to be heard

Hargreaves Lansdown (LSE:HL.) is in danger of falling out of the FTSE 100, as it’s among the stocks on the lead index with the lowest valuation. Several FTSE 250 stocks are now worth more than the brokerage.

The FTSE 100 stock has fallen significantly since the pandemic and, in recent months, the downward trajectory has reflected rising interest rates. However, these also represent a considerable tailwind for the brokerage.

So let’s explore the size of this tailwind and whether Hargreaves could be the most undervalued stock on the FTSE 100.

Piecing together the evidence

We don’t have the full picture, but there are several key pieces of information here. Firstly, in the first half of the year, which ended on 31 December, we can see revenue rose 20% at £350m.

This was driven by 976% increase on cash holdings — cash held by Hargreaves Lansdown customers on the brokerage platform. This was possible because Hargreaves lends its customers cash deposits out to the market.

Cash during H1, was actually Hargreaves’s most profitable asset class. It generated £121.6m in returns and had a 166 basis point margin. Cash assets under administration were £14.5bn at the end of the quarter.

However, obviously the Bank of England base rate increased significantly in the first half of 2023, going from 3.5% to 5%. As such, we could expect returns on cash to be even higher in the second half of the year.

A record year

Traditionally, most of Hargreaves income comes in the form of fees on investor accounts and dealings. However, investor activity has slumped during the worsening economic conditions. Activity will likely only improve when interest rates start to fall and economic conditions improve.

Despite this, 2023 could be a record year for Hargreaves. Revenue generation is on track to outpace any year to date, even the ‘extraordinary’ 2021.

2019 2020 2021 2022 2023
£480.5m £550.9m £631m £583m ? (H1, £350m)
Revenue by year

We can also see that in the first half of the year profit before tax was up a phenomenal 31%. Diluted EPS was up 29% to 33.1p. Clearly, there’s little sign that costs are increasing in tandem with revenue.

Making the conservative estimate that this performance is matched in the second half of the year, Hargreaves could be trading at around 11.5 times forward earnings. That doesn’t means it’s the cheapest stock on the FTSE 100, although it’s below average.

But to put this figure into context, Hargreaves Lansdown’s adjusted P/E ratio for fiscal years ending June 2018 to 2022 averaged 29.4 times. As such, we can also note the firm is trading at a considerable discount to its five-year average. It may be hard to find this type of discount anywhere else on the index.

So while it may take some time before we see strong trading activity return, the business is flourishing.

The post Is Hargreaves Lansdown the most undervalued stock on the FTSE 100? appeared first on The Motley Fool UK.

Don’t miss this top growth pick for the ‘cost of living crisis’

While the media raves about Google and Amazon, this lesser-known stock has quietly grown 880% – with a:

  • Greater than 20X increase in margins
  • Nearly 60% compounded revenue growth over 5 years – more than Apple, Amazon and Google!
  • A 3,000% earnings explosion

Of course, past performance is no guarantee of future results. However, we think it’s stronger now than ever before. Amazingly, you may never have heard of this company.

Yet there’s a 1-in-3 chance you’ve used one of its 250 brands. Many are household names with millions of monthly website visitors, and that often help consumers compare items, shop around and save.

Now, as the ‘cost of living crisis’ bites, we believe its influence could soar. And that might bring imminent new gains to investors who’re in position today. So please, don’t leave without your FREE report, ‘One Top Growth Stock from The Motley Fool’.

Claim your FREE copy now

setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#FFFFFF’);

More reading

  • Hargreaves Lansdown shares yield 5%. Are they one of the FTSE 100’s best buys?
  • Could Hargreaves Lansdown shares be turning a corner?
  • Up 20% in a month! How Hargreaves Lansdown shares won last week’s FTSE 100 rally
  • Up 10% in a week, is it time to back Hargreaves Lansdown shares?
  • These FTSE 100 stocks could now be brilliant bargain buys

James Fox has positions in Hargreaves Lansdown Plc. The Motley Fool UK has recommended Hargreaves Lansdown Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.