Investment Column: Wait for Hargreaves Lansdown to soften

Eaga; 32Red


Our view: Hold for now

Share price: 245.7p (-2.3p)

Hargreaves Lansdown is a rare creature indeed – a successful, growing, financial services business. HL yesterday beat analysts' forecasts with a 20 per cent rise in pre-tax profits to £73.1m on turnover of £132.8m, up 10 per cent. That would be a decent enough result in boom times, but is quite exceptional in the current climate. The investment broker has been successful because its platform allows it to keep hold of customers whatever they chose to do with their money.

If they move into cash, for example, it can use bulk purchasing power to offer them a better rate. At the same time, if they move into funds, its Vantage platform enables it to keep the renewal commissions priced into the funds' annual management fees without offering any advice.

The technology used has proved to be a winner and Vantage's structure enables it to add additional customers while incurring relatively little cost. Pretty good going for what was once a run-of-the-mill stockbroker. HL is also advantaged by its Bristol base, which enables it to keep costs down and much lower than they would be if was located in the South East.

The outlook is pretty rosy to. Margins will probably fall on deposit rates, as customers move out of cash, but there is an increasing appetite for equities as the market shows signs of recovery, and this is where the best margins are. The trouble is that the market has caught up with the story and the shares are not particularly cheap.

They trade on 15 times next year's forecast earnings compared to 9.2 times for Rathbone Brothers and 9.7 times for Brewin Dolphin. But then, HL is motoring like a Ferrari while the latter two look more like Ford Focuses. The prospective yield, at 3.7 per cent, is respectable and the company is not shy about paying dividends. HL is going to find it hard to repeat the performance, but then it keeps defying expectations. These shares are a solid Hold, if not better. Hold for now.

Eaga

Our view: Hold

Share price: 129.5p (-1.2p)

Drew Johnson says that he takes responsibility for not getting the message out on the investment case for Eaga, the residential environmental services group. The result (which was also partly caused by investor nervousness about a relatively new company, he says) is that the market has not fully grasped the Eaga story.

The tale is that the group has just had a very good year: annual adjusted pre-tax profit is up 24 per cent, the dividend is up 17 per cent, and earnings per share spiked by 26 per cent. Mr Johnson, the group's chief executive, says that the majority of its work is driven by regulation, rather than the machinations of supply and demand, and that the country cannot afford to ignore the environmental aspect of Eaga's business.

But that may be the problem. Companies like Eaga were popular during the dark days of the downturn when investors flocked to perceived safe bets – the group got off more lightly than others. However, with punters happier to take on more risk in the last six months, Eaga's share price has comparatively stalled. Yesterday's impressive numbers did little to excite with the shares down 0.9 per cent.

The group has plenty of support among analysts. Those at Panmure Gordon say buy, arguing the stock will reach 175p: "The 2009 price-earnings ratio is 9.4 times, falling to 8.7 times, which is a big discount to its support services peers. The dividend yield is 3 per cent. These are good results and, with an upbeat outlook statement, we expect a positive share price reaction.

"With the ongoing drive to improve energy efficiency, fuel poverty, environment and carbon reduction issues, backed up by government-funded schemes, we reiterate our positive stance."

We would agree that the group is offering a solid performance and the discount would tempt us, but better yields can be found elsewhere and we would expect the share price to stall as investors chase riskier bets. Hold.

32Red

Our view: Buy

Share price: 19p (-2.5p)

Taking a bet on 32Red is simple, says chief executive Ed Ware. Operating in just the UK, the online casino group benefits from not offering their services overseas, thus avoiding any unexpected regulations, he says.

Despite that, the group put out disappointing first-half results yesterday, with revenues down 11.2 per cent. It has got better in the first two months of the second half of the year. The biggest risk for 32Red, Mr Ware says, is if the economy implodes as it did toward the end of last year.

The stock was down 11.6 per cent yesterday, but investors were no doubt taking profits after gains of 16 per cent in the last quarter. With no dividend, investors will need more appreciation and, trading on a p/e ratio of 10.4 times, we think it is on the cards. Buy.

Start your day with The Independent, sign up for daily news emails
Life and Style
Miracle muffin: chemicals can keep a muffin looking good at least a month after it was bought
food + drinkThe alarming truth behind the chocolate muffin that won't decay
News
business
Arts and Entertainment
TV
News
An 'Einstein cross', just above the multicoloured cross, shows four spots of yellow light, where the light from a distant supernova is distorted by 'gravitational lensing'
science
Voices
A recent rise in net migration has been considered bad news for the Government
voicesYet when we talk about it, the national media goes into a frenzy, says Nigel Farage
Sport
Johnny Evans and Papiss Cisse come together
footballI don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
News
people
ebooks
ebooksA special investigation by Andy McSmith
News
Details of the self-cleaning coating were published last night in the journal Science
science
News
Approved Food sell products past their sell-by dates at discounted prices
i100
News
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
News
i100
Arts and Entertainment
The beat is on: Alfred Doda, Gjevat Kelmendi and Orli Shuka in ‘Hyena’
filmReview: Hyena takes corruption and sleaziness to a truly epic level
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable