Hargreaves Lansdown (LSE: HL) released a trading update this morning. The shares were down 4% at under 1,300p in the first hour of trading taking the decline since Monday to over 10% but theyve recovered a bit of ground this afternoon.
Ill come to the reason for the current weakness shortly. But let me say at the outset that I believe this weeks drop represents an opportunity to buy into one of the top long-term growth stories in the FTSE 100.
Number one destination
HL today reported it gained 56,000 new clients in the four months to 30 April, taking the number of active clients to 932,000. Net new business of 3.3bn and market gains of 3.7bn saw assets under administration increase 10% to 77bn.
The company said a number of factors contributed to the strong performance, including a recovery in investor confidence ahead of the end of the tax year and the launch of Neil Woodfords Income Focus Fund.
HL is the UKs leading retail savings and investments platform, which puts it in a strong position to enjoy the long-term tailwind of what is a structural growth story in the UK savings and investments market. For example, major shifts in areas such as pensions are pushing more people to manage their own investments. And I believe market leader HL will continue to be the number one destination for this rising tide of retail money.
No serious threat
The reason for this weeks drop in the shares is the launch of a low-fee platform by US passive fund specialist Vanguard. I dont see this as a serious threat to HLs business, because the Vanguard platform only offers in-house products and not the range of actively-managed and passive funds, shares, bonds and tax wrappers that HL offers. One analyst has calculated that if the average HL client moved the passive element of his or her portfolio to Vanguard, theyd save just 7 a year.
Even after this weeks drop in the shares, HLs 12-month forward price-to-earnings (P/E) ratio is a relatively high 28. However, I reckon the company should be capable of punching mid-teens earnings growth for many years to come. As such, I believe the shares could prove a great buy.
Harnessing digital technology
Relx (LSE: REL) is another FTSE 100 stock where I see a long-term growth opportunity for investors today. At 1,610p, the shares are only a tad below their recent all-time high. Despite this, the 12-month forward P/E of 19 is markedly lower than HLs 28. On the other hand, I think Relxs annual earnings growth is likely to be a little less than the mid-teens increases Ive pencilled-in for HL.
Relx has evolved from a traditional print publisher into a leading information and analytics group, diversified across four market segments: scientific, technical and medical; risk and business analytics; legal; and exhibitions. Digital technology continues to drive the ongoing evolution, expansion and efficiency of the business. Operating margins have been ticking up each year, which, together with increasing revenues, is driving strong earnings growth.
I believe Relx can continue to harness digital technology and maintain its growth trajectory in the coming years. As such, I see this as another very buyable stock for investors seeking long-term capital gains.
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