President, Vision Research

Robert C Prather Jr

President

Vision Research

Vision Research was formed in 2004 with the vision of generating the best possible fundamental analysis and investment research for smid cap US equities. In 2008, we broadened our coverage to include mid/large cap US stocks.  After researching a  few ideas outside the US each year for a number of years, we launched a dedicated non-US equity product at the end of 2015.  This was followed by the introduction of a product focused on IPOs in mid-2017.

Fundamental Insight

Equity Bottom-Up

<p>Hargreaves has benefitted from more retail investors trading their personal accounts during COVID and market appreciation.  However, comparisons will become more difficult as 2021 progresses, competitors are offering cheaper trading commissions and introducing new products, and the Co-Founders just sold 300mn pounds of stock (17% of his holdings).  Although shares are trading below historical averages, 20x Fwd EBITDA is a large premium to US publicly traded brokerage peers and M&amp;A multiples in the space.</p>

Hargreaves has benefitted from more retail investors trading their personal accounts during COVID and market appreciation.  However, comparisons will become more difficult as 2021 progresses, competitors are offering cheaper trading commissions and introducing new products, and the Co-Founders just sold 300mn pounds of stock (17% of his holdings).  Although shares are trading below historical averages, 20x Fwd EBITDA is a large premium to US publicly traded brokerage peers and M&amp;A multiples in the space.

Hargreaves Lansdown(HL/ LN):Co-Founders Sells 17% Stake,Difficult Comparisons,Increasing Competition

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Capital Markets

<ul>
<li>In the follow-on issue, the primary portion announced by <a href="https://www.smartkarma.com/entities/xp-inc" target="_blank" data-smartkarma-citation="entities:28619:1" rel="noopener">XP Inc (XP US)</a>  is small relative to its current market value (c 1.5%), but coupled with the Itaú partial disposal of a maximum 4.3% stake in XP, it creates a clear share over-hang</li>
<li>In addition, <a href="https://www.smartkarma.com/entities/itau-unibanco-holding-sa-9d47d196-e503-471b-a84e-ca4401033062" target="_blank" data-smartkarma-citation="entities:24550:1" rel="noopener">Itau Unibanco Holding Sa (ITUB4 BZ)</a>’s spin-off of its remaining stake in XP (c 41.2% post follow-on) into single-purpose company named NewCo was approved by its board on 26<sup>th</sup> November, and shares in the forthcoming NewCo are exempt from any lock-up agreement</li>
<li>HoldCo <a href="https://www.smartkarma.com/entities/itausa-investimentos-itau-pr" target="_blank" data-smartkarma-citation="entities:24513:1" rel="noopener">Itausa-Investimentos Itau-Pr (ITSA4 BZ)</a> will become a large shareholder in XP post Itaú Unibanco’s spin-off, and although it has stated that it does not intend to dispose of its stake in the short term, Itausa does not consider the XP stake as a long term, strategic holding</li>
<li>The spin-off, lack of lock-up for spun-off shares and Itausa’s non-strategic classification of its XP holding creates further medium term over-hang for XP shares, in our view, post the follow-on issue; add to this the challenging fundamental outlook (especially related to the IFA “arms race”) and XP’s demanding valuations, it all contributes to our caution on XP shares</li>
<li>We prefer indirect, and diluted, exposure through holdco Itausa, in which we estimate Itausa will have an 15.6% economic stake in XP post follow-on issue and NewCo formation</li>
<li>Risks to our view include better than expected fundamental performance by XP, and less than expected pressure on costs related to incentives for IFAs, which would continue to drive premium growth and justify the premium multiples, and smaller than expected secondary share offerings in XP over the medium term</li>
</ul>


In the follow-on issue, the primary portion announced by XP Inc (XP US)  is small relative to its current market value (c 1.5%), but coupled with the Itaú partial disposal of a maximum 4.3% stake in XP, it creates a clear share over-hang
In addition, Itau Unibanco Holding Sa (ITUB4 BZ)’s spin-off of its remaining stake in XP (c 41.2% post follow-on) into single-purpose company named NewCo was approved by its board on 26th November, and shares in the forthcoming NewCo are exempt from any lock-up agreement
HoldCo Itausa-Investimentos Itau-Pr (ITSA4 BZ) will become a large shareholder in XP post Itaú Unibanco’s spin-off, and although it has stated that it does not intend to dispose of its stake in the short term, Itausa does not consider the XP stake as a long term, strategic holding
The spin-off, lack of lock-up for spun-off shares and Itausa’s non-strategic classification of its XP holding creates further medium term over-hang for XP shares, in our view, post the follow-on issue; add to this the challenging fundamental outlook (especially related to the IFA “arms race”) and XP’s demanding valuations, it all contributes to our caution on XP shares
We prefer indirect, and diluted, exposure through holdco Itausa, in which we estimate Itausa will have an 15.6% economic stake in XP post follow-on issue and NewCo formation
Risks to our view include better than expected fundamental performance by XP, and less than expected pressure on costs related to incentives for IFAs, which would continue to drive premium growth and justify the premium multiples, and smaller than expected secondary share offerings in XP over the medium term


XP (XP US) Follow-On Issue Highlights Over-Hang, Potential for More Share Sales Post Itaú Spin-Off

<ul>
<li>
<a href="https://www.smartkarma.com/entities/xp-inc" target="_blank" data-smartkarma-citation="entities:28619:1" rel="noopener">XP Inc (XP US)</a> management has announced its IPO on Nasdaq which is set to price this week, making it the largest Brazilian corporate IPO in 2019 with proceeds of upto USD2.1bn</li>
<li>As the leading independent investment and brokerage firm in Brazil, with its digital and multi-channel distribution, XP is disrupting the marketplace and taking share from the traditional players, the large cap domestic banks</li>
<li>Despite a 2014-18A CAGR in assets under custody (AUC) of 92%, it has more growth potential, and it is benefiting from low benchmark rates in Brazil, with retail investors switching to investment funds, bonds and shares</li>
<li>Still, a key issue going forward will be the pressure on retail client fees, given the intense competition from the bank incumbents as well as other independents</li>
<li>Partly to counter this, management will need to execute very effectively going forward, especially on costs, in order to deliver the premium growth to justify XP's premium IPO valuation</li>
<li>Our core initial valuation scenario suggests that, at the mid point of the price range,  XP is attractive on 2018-22E EVG of under 0.5x, and a 2018-22E PEG of under 0.75x</li>
<li>Risks to our positive thesis on XP include greater-than-expected pressure on retail investment fees, from both incumbents and other disruptors, as well as worse-than-expected execution on opex and at the macro-level there is the risk of a spike in benchmark interest rates</li>
</ul>



XP Inc (XP US) management has announced its IPO on Nasdaq which is set to price this week, making it the largest Brazilian corporate IPO in 2019 with proceeds of upto USD2.1bn
As the leading independent investment and brokerage firm in Brazil, with its digital and multi-channel distribution, XP is disrupting the marketplace and taking share from the traditional players, the large cap domestic banks
Despite a 2014-18A CAGR in assets under custody (AUC) of 92%, it has more growth potential, and it is benefiting from low benchmark rates in Brazil, with retail investors switching to investment funds, bonds and shares
Still, a key issue going forward will be the pressure on retail client fees, given the intense competition from the bank incumbents as well as other independents
Partly to counter this, management will need to execute very effectively going forward, especially on costs, in order to deliver the premium growth to justify XP's premium IPO valuation
Our core initial valuation scenario suggests that, at the mid point of the price range,  XP is attractive on 2018-22E EVG of under 0.5x, and a 2018-22E PEG of under 0.75x
Risks to our positive thesis on XP include greater-than-expected pressure on retail investment fees, from both incumbents and other disruptors, as well as worse-than-expected execution on opex and at the macro-level there is the risk of a spike in benchmark interest rates


XP Inc (XP US): This Brazil Fintech's Growth Potential Warrants the Premium IPO Valuation

Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

Accelerating Tomorrow’s Independent Research

Boost Research

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<p><strong>The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  </strong></p>
<h2><strong>Hargreaves Lansdown: What does it do ?</strong></h2>
<p>Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients</p>
<h2><strong>Why is it in the Short portfolio ?</strong></h2>
<p>Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/444/original/port%202.PNG?1551297124" class="editor-image img-responsive" data-smartkarma-image-id="80444"></figure>
<div class="content-caption">S&amp;P Capital IQ</div>

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
Hargreaves Lansdown: What does it do ?
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
Why is it in the Short portfolio ?
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 

S&amp;P Capital IQ

Hargreaves Lansdown (HL/:LN) No Flow, No Go

United Kingdom

Hargreaves Lansdown is a British financial services company and the UK's largest direct-to-investor investment platform for private investors. It provides a platform for individuals to manage their investments and pensions, offering a wide range of investment options including funds, shares, bonds, gilts, and various account types like Stocks and Shares ISA, SIPP, and Junior ISA. The company is headquartered in Bristol, England, and was founded in 1981.

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Hargreaves Lansdown (DMB GR)

Hargreaves Lansdown(HL/ LN):Co-Founders Sells 17% Stake,Difficult Comparisons,Increasing Competition

An overpriced brokerage and asset management business facing intense low cost competition, difficult comparisons, and heavy insider selling.

Robert C Prather Jr

XP Inc (XP US): This Brazil Fintech's Growth Potential Warrants the Premium IPO Valuation

XP Inc (XP US) management has announced its IPO on Nasdaq which is set to price this week, making it the largest Brazilian corporate IPO in 2019...

Victor Galliano

Hargreaves Lansdown (HL/:LN) No Flow, No Go

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. A tough market...

Boost Research

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52-week Range

Market Cap (USDm)

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Hargreaves Lansdown(HL/ LN):Co-Founders Sells 17% Stake,Difficult Comparisons,Increasing Competition

An overpriced brokerage and asset management business facing intense low cost competition, difficult comparisons, and heavy insider selling.

Robert C Prather Jr

XP (XP US) Follow-On Issue Highlights Over-Hang, Potential for More Share Sales Post Itaú Spin-Off

Post XP's follow-on, we see the spin-off, lack of lock-up for spun-off shares and Itausa’s non-strategic view of its XP shares adding to risk of...

Victor Galliano

XP Inc (XP US): This Brazil Fintech's Growth Potential Warrants the Premium IPO Valuation

XP Inc (XP US) management has announced its IPO on Nasdaq which is set to price this week, making it the largest Brazilian corporate IPO in 2019...

Victor Galliano

Hargreaves Lansdown (HL/:LN) No Flow, No Go

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. A tough market...

Boost Research