Hargreaves’ future is out of its control

HARGREAVES’ fortunes are inextricably linked to that of the wider share market. The FTSE 100 rose almost 20 per cent from 1 July 2009 to 30 June this year, after being down by more than a third from mid-2007, and it is this buoyancy in equity markets which is the true driver behind its record levels of revenue, profit and earnings per share.

Assets under administration surged to £17.5bn from £11.9bn – a 47 per cent rise – as its clients sought out higher returns than the lowly ones available in an interest rate environment of 0.5 per cent.

But the business is on a knife edge. If house prices do continue to fall, as Peter Hargreaves predicts, then interest rates will remain low – potentially perpetuating this sales boom. But if the fall pushes the UK into a double-dip recession, confidence will plunge – sending investors scurrying for safe-haven assets and out of equities.

The shares trade on a prospective earnings multiple of 25 times, which looks pricey given the risk.