personal finance

Hargreaves Lansdown insider buys on upgrades

On several important metrics, the third quarter of 2020 was another great one for Hargreaves Lansdown. Clients using the FTSE 100 firm’s DIY investment platform edged up 31,000 to 1.44 million, while strong share dealing volumes meant revenue was 12 per cent ahead of the same period in 2019, despite the FTSE All-Share index trading 18 per cent lower.

The market instead “[chose] to focus on the £800m of net inflows”, argued analysts at Numis. Believing investors are overlooking the structural growth story, expansion opportunities and a valuation “near a historical low”, the brokerage subsequently upgraded the stock to a “buy”.

Numis is not the only sellside team to have refreshed the bull case. The following day, Peel Hunt increased its full-year earnings forecast by 5 per cent and bumped its recommendation to “buy”, arguing that concern around falling income earned on cash deposits is overdone. The previous week, headwinds to interest income sparked Canaccord to cut their full-year 2022 forecasts, even as it lifted its price target on expectations of stronger inflows.

Sharing the optimistic tone is John Troiano, who joined the DIY investment group’s board as a non-executive director in January. On October 21, the same day Numis published its note, the former Schroders lifer acquired 14,400 shares over 38 separate transactions, at an average price of 1,363p.

On its own, the purchases are unlikely to catalyse a sudden re-rating in the shares. Nor for that matter are the broker upgrades, which have led to a mere 2.6 per cent rise in the consensus forecast for the year to June 2021 over the past month.

The market now expects earnings of 52.4p per share for the period, and 50.7p for full-year 2022. At 1,360p, that equates to 27 times’ next year’s profits — fair for a quality long-term holding, but hardly cheap given the risks to market values.

Four trusts that count Gamma Communications non-executive director Andrew Stone as a trustee have each disposed of around £438,000 in shares. The disposals follow sales made by Mr Stone earlier in October, which earned him around £1.7m. Mr Stone is not a beneficiary of any of the four trusts, and as such his own stake in the company is unaffected by their disposals. The director has a 4.3 per cent stake in Gamma.

The director’s own share sales follow disposals made earlier this year, when Mr Stone banked another £1.76m in March and April. The company chose not to comment on his latest share dealings or those made by the trusts.

Gamma shares have edged up by 8 per cent since it released its half-year results on September 8. The telecoms group has set about becoming a leading provider of unified communications-as-a-service (UCaaS) in the UK, Spanish, Dutch and German markets. UCaaS is a cloud-based communications framework that includes internet connectivity and call management. Acquisitions are a key part of the company’s growth strategy, and Gamma spent around £45m on four deals during the first seven months of 2020. 

Last month, Gamma announced it had grown its pre-tax profits by a fifth over its six months to the end of June, although the business has been negatively impacted by the coronavirus pandemic. A hibernation scheme, which allowed customers to suspend payments temporarily, cost Gamma £1.2m. Most customers have since recommenced their payments, with the majority of sales billed on a monthly basis.

Analysts at Peel Hunt forecast full-year 2020 adjusted pre-tax profits and earnings per share of £60.5m and 51p, respectively, rising to £67.1m and 56p in 2021.

This latest flurry of disposals linked to Mr Stone will do little to inspire confidence in Gamma investors. But the sales are not out of character for the director, while there’s been no new information to suggest that the company is faltering in its push to spearhead the European UCaaS market.


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