Investing.com -- Shares of Hargreaves Lansdown PLC (LON:HRGV) remained stable on Tuesday following the release of its trading update for the first quarter of 2025.
Analysts at RBC (TSX:RY) Capital Markets noted that while the company's revenue showed resilience, net platform flows fell short of expectations, indicating potential challenges ahead.
In the update, Hargreaves Lansdown reported total revenues of £196.5 million for the quarter, surpassing consensus estimates by 3% and reflecting a 7% year-on-year increase.
This performance was attributed to higher assets under administration (AUA) balances and a significant rise in share dealing volumes, which helped offset a decline in the net interest margin on client cash.
However, the company’s net new business of £0.5 billion was a stark contrast to the consensus forecast of £1.3 billion, representing a disappointing 61% miss and a significant 69% decrease quarter-on-quarter.
This shortfall was primarily driven by unexpected net outflows of £0.3 billion from the investment platform, which typically carries higher margins, while flows from Active Savings remained in line with expectations.
Hargreaves Lansdown’s asset retention rate slipped to 88.6%, reflecting a decline of 90 basis points from the previous quarter.
This suggests gross inflows of £5 billion, marking a 22% decrease compared to the fourth quarter of 2024, while gross outflows fell by 6% to £4.5 billion.
Despite the disappointing inflows, the firm achieved a closing AUA of £157.3 billion, up 17% year-on-year, which matched consensus estimates. This stability in AUA was supported by an in-quarter market move of 1.0%.
The company also reported a surprise 2% increase in closing cash balances, reaching £12.7 billion, compared to a consensus expectation of £12.2 billion.
This rise was attributed to investment sales made in September, although on average, cash balances experienced a slight decline of 2% quarter-on-quarter and 1% year-on-year.
Monthly share dealing volumes totaled 738,000, down 12% from the previous quarter's elevated levels but up 16% year-on-year.
Furthermore, Hargreaves Lansdown welcomed a net gain of 18,000 clients during the quarter, bringing the total active clients to 1.9 million, an increase of 5% year-on-year, which aligned with market expectations.
The CEO flagged that the company is "particularly mindful" of the upcoming UK budget, although the trading update offered limited forward-looking commentary.
RBC Capital Markets analysts highlighted the importance of this budget since it may affect investor sentiment and trading activity in the future.
Additionally, Hargreaves Lansdown's proposed acquisition by a consortium of private equity investors remains on track for completion in the first quarter of 2025.
“While flows may be weaker than expected, revenues (driven by volumes) are strong and the customer base continues to grow. Near-term headwinds from worries about the budget may dissipate, and HL/ approaches the expected completion of its acquisition in the first quarter of 2025 in good shape,” said analysts at Jefferies in a note.