The launch of Hargreaves Lansdown’s (HRGV) new cash savings platform will offer ‘huge potential upside’ as the investment giant taps into a £40 billion pool of client money.
Shore Capital analyst Paul McGinnis downgraded his recommendation on the stock from ‘buy’ to ‘hold’, with the shares having reached his £16.75 'fair value' despite the sell-off in equity markets having 'theoretically' wiped out Hargreaves' £3.6 billion rise in assets in the first half of its financial year.
But he is enthusiastic about prospects for the online stockbroker's cash savings service, which he has trialled alongside selected Hargreaves Lansdown clients.
Each of the banks is offering accounts with terms between six months and five years, with rates of between 0.8% and 1.95%.
While the rates may not look too impressive, the launch of the platform – which was delayed by a year – will allow Hargreaves Lansdown to try and take a share of the £1.4 trillion UK cash savings market. Among its existing clients, Hargreaves has a pool of over £40 billion of cash savings to target, McGinnmis said.
Hargreaves receives its fee directly from the partner banks, meaning clients do not pay an explicit platform fee.
While McGinnis said there will be no benefit to profit and loss this year, ‘the prize is large’ and attracting just £5 billion of cash balances would boost profit before tax by 2%.
‘Suffice to say, we see huge potential upside for Active Savings,’ he added.
McGinnis said he was impressed by the service's ‘slick user interface and simplicity’.
He said the lack of form filling passed ‘the convenience test’ which is ‘something we think can be underestimated by investors’.
Future interest rate rises will see Active Savings ‘really come into its own’, predicted McGinnis.
‘Banks may then need to compete more aggressively to attract deposits and may be more prepared to offer "sweetheart" deals to a distributor like Hargreaves which has one million clients able to potentially raise this money very quickly and cheaply,’ he said.
‘We see parallels with how Hargreaves’ position developed in the fund management industry.’