Hargreaves Lansdown leads FTSE fallers after Citi places firm on sell rating

Hargreaves Lansdown has been the biggest faller in the FTSE 100 on Monday after analyst Citi placed the firm on a sell rating.

Harsgreave Lansdown has seen its share price fall 4.5 per cent after the analyst warned that the wealth manager was overvalued for the risks it faced, such as RDR and increased competition.

Citi says: “We estimate that the new Sipp loyalty bonus and falling cash net interest income create a £10m headwind, which is not yet fully reflected in consensus forecasts. Longer term we also see a shift in assets under management mix towards passive funds as negative for profitability.”

The group also says the departure of Hargreaves Lansdown co-founder Stephen Lansdown in November will see a potential overhang risk from his 20 per cent stake in 2013.

Hargreaves Lansdown (HL) has seen its share price soar since it floated on the stock exchange in 2007. The group joined the FTSE 100 in March 2011.

At 15.58, its share price stood at 726p per share, down on the 52-week high of 759p.

Citi says: “HL will need to announce and implement a new Vantage paid-for business model during 2013. We see this as potentially disruptive to new business flows and ‘normal’ operations.

“HL has a strong starting position – 15 per cent UK retail fund flow market share FY12 . Many market participants expect RDR to result in a shift in retail investment distribution mix, with more non-advised, direct or platform-based retail investment flow post-RDR.

“The prospect of this growing market is likely, in our view, to encourage both new entrants and more aggressive ‘land grab’ tactics by existing platform providers. This could lead to loss of market share and/or increased competitive pressure on margins for Vantage.”