Why RBS analysts have Hargreaves Lansdown concerns

Hargreaves Lansdown's 42% leap in assets, reported on Thursday, was cheered by the market and the company was rewarded with a surge in its shares.

But after the dust settled on the numbers, analyst at RBS Securities said they see downside risk in the stock.  Even though its analysts believe Hargreaves is worthy of a 'hold' rating, replication of its revenue model remain a serious threat.

'Its dominant market position and strong underlying demand for tax-incentivised savings vehicles are persisting over the next 12 months, underpinning robust earnings and dividend growth,' Nicolas Burgess, part of the general finance equities team at RBS, said.

'That said, we have a number of longer term concerns regarding HL's revenue model (revenue margins facing potential downward pressure) and competition (a number of new entrants are likely),' the analyst added.

In the past, Hargreaves has acknowledged that some of its competitors may try to steal a slice of their market share by replicating its model, and for the first time on Thursday acknowledged the potential impact of tighter regulation may on its profits.  But like a number of its investors - including Standard Life Investments' (SLI) Harry Nimmo - the FTSE 100 company believes it will adapt to the changing regulatory environment.

Nimmo, who holds the stock in his SLI UK Smaller Companies fund, and his trust of the same name, also gave the firm his backing following the release of its one year results.

Nimmo said: ‘We remain enthusiastic about the company and believe it can adapt to the impact of regulatory reform.’