Brief Equities Bottom-Up: Hargreaves Lansdown (HL/:LN) No Flow, No Go and more

In this briefing:

1. Hargreaves Lansdown (HL/:LN) No Flow, No Go
2. Dhanlaxmi Bank- Free from the PCA Stranglehold
3. AMD. Market Share Gains Across The Board As Intel Vows To Fight To Protect Its Position
4. Autohome (ATHM): Promising Auto Loan, Waiting for Buying Opportunity

1. 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 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. 

2. Dhanlaxmi Bank- Free from the PCA Stranglehold

Dhanlaxmi Bank (DHLBK IN) share price has surged by 10% today on the back of RBI move to take it out of Prompt Corrective Action (PCA) following improvement in its financial ratios. We have mentioned in our earlier reports (please click here, here and here) about the helplessness of the bank as it couldn’t lend due to restrictions from RBI.

Now as the grip is loosened, Dhanlaxmi can resume lending activities and improve its financial ratios without adding any new capital in the near term.

We analyze the implications post PCA through this report.

3. AMD. Market Share Gains Across The Board As Intel Vows To Fight To Protect Its Position

Some two years on from the initial launch of products designed around their new Zen-based architecture, Advanced Micro Devices is finally gaining meaningful traction in terms of market share gains. In Q4 2018, AMD gained market share in desktop, mobile, and server sequentially and year over year – the fourth straight quarter of gains in all segments as well as their highest market shares across all segments in almost five years. Perhaps the most significant accomplishment was in server where AMD’s share doubled QoQ to 3.2%, according to data supplied by Mercury Research.

As you might expect, Intel is taking notice, acknowledging the competitive environment on its latest earnings call and vowing to fight to protect its position. In light of the 25-30% reduction in the price of Intel’s latest and highest end desktop processors on leading German online retailer MindFactory since their launch last October, it would appear that Intel’s battle tactics include sacrificing ASPs where it deems fit.  

4. Autohome (ATHM): Promising Auto Loan, Waiting for Buying Opportunity

• The 4Q2018 results suggest that it is a right decision to close out direct automobile sales and start auto loan.
• The 4Q2018 results also suggest that ATHM has successfully completed the post-acquisition integration after three years.
• Peer companies’P/E ratios suggest ATHM is fairly valued, but we believe it will be a good opportunity to accumulate if the stock price falls.