Hargreaves' costs soar on 'GameStonk' frenzy, stock falls 10%
Aug 9 (Reuters) - Hargreaves Lansdown attracted a record number of new clients in the fiscal year to June, but costs associated with handling such unprecedented volumes caused Britain's biggest fund supermarket to miss market expectations on profit.
That drove a 10% fall in the company's share price by 0744 GMT, setting it up for its steepest intra-day fall in more than a year and making it the worst performer on the FTSE 100 index.
Hargreaves' underlying earnings came in at 366 million pounds ($507.42 million) for the 12 months to the end of June, missing a consensus estimate of 383 million pounds but an 8% rise compared to a year earlier.
Operating costs surged by 24% to 266 million pounds, with the company saying it spent more to support higher client activity levels, maintain client service and invest in growth opportunities.
Hargreaves has benefited from a surge in trading volumes as retail traders gathered on platforms such as Reddit to discuss strategies and bet against beaten-down stocks in a flurry of activity dubbed 'GameStonk'.
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However, spikes in volume led to outages at trading platforms after a major COVID-19 vaccine progress report last year, emphasising the need for more investment to make platforms more resilient.
"Margins are expected to continue to fall as dealing volumes come off COVID highs and (Hargreaves Lansdown) fund fee cuts and interest rates work through," Jefferies analysts said. "The problem of having more, less profitable, clients is emerging."
The company said equity trading volumes surged 54% compared to the prior year, which in part boosted total client base by a record 233,000 to 1,645,000.
Hargreaves added that it will continue to invest in its service and technology and also pointed to the cost of servicing a bigger client base, adding overall costs in the current year will reflect that spend.
Hargreaves' assets under administration grew 30% to 135.5 billion pounds, with 8.7 billion pounds in net new business inflows. Dividend per share rose 3% to 38.5 pence but total dividend fell 8% to 50.5 pence compared to last year, when it paid a special dividend. ($1 = 0.7213 pounds) (Reporting by Muvija M in Bengaluru, editing by Huw Jones, Kirsten Donovan)
