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LONDON -- Hargreaves Lansdown (LSE: HL.L ) shook off a 7% drop in the market to report 45,000 new clients investing 3.2 billion pounds on the company's platform -- an increase of 13%. These new investors helped lift revenue 15%, and an eye toward managing costs pushed pre-tax profits up 21%.
The company's asset-light business model -- each new customer requires little investment in new facilities or equipment -- means Hargreaves Lansdown is able to pass much of the increase in profits on to shareholders. The board approved a final and special dividend of 17.49 pence, which translates to a nearly 20% increase in the full-year dividend, providing a 3.6% yield even after the shares' 45% climb year to date.
A parting gift
The final and special dividend are a nice 16.7 million pounds parting gift for founder Stephen Lansdown, who announced his retirement from the company's Board of Directors two years after removing himself from executive responsibilities with the company. Though Foolish investors rarely like to see a founder or significant shareholder leave a company, at 60, Lansdown's retirement isn't a surprise, and the company's succession plan appears robust enough that his departure shouldn't disrupt operations or strategic planning.
What lies ahead?
After the recent run-up in price, Hargreaves Lansdown shares sit on a price-to-earnings ratio of 26, which may seem a bit high until you realize the company boasted earnings growth of 23% this past year. However, investors should be forward looking and need to ask themselves if this growth can continue.
In a market like the one we're seeing, it was impressive to see 3.2 billion pounds in new business flow into Hargreaves Lansdown's accounts, but this was down from 3.5 billion pounds a year ago. Continued uncertainty isn't likely to boost investor confidence, continued near-recession growth won't help boost the amount of investable funds, and the potential pain new of regulations could negatively impact the company's profits.
Hargreaves Lansdown CEO Ian Gorham clearly sees challenges for investors and is not expecting any short-term improvement in economic conditions. However, he put on an optimistic face regarding the company's ability to grow, citing new product offerings and the company's emphasis on customer satisfaction as ways Hargreaves Lansdown is looking to shake off market malaise. He also said he feels the company is well placed to meet the new regulatory demands.
The company's strong cash flow generation and dividend growth are attractive, but the market is pricing in continued strong growth. This could put the shares in a precarious position if the growth expectations aren't met. Hargreaves Lansdown did well in its most recent fiscal year, but the near-term future doesn't look to be getting any easier.
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Nate does not own any of the shares mentioned. The Motley Fool owns shares of Hargreaves Lansdown.