When it comes to stock market crashes and investors selling, there are some companies pretty much guaranteed to do good business. I’m thinking of stockbrokers. Those providing the investing platforms, the ISAs, the SIPPs. And then there’s the company providing the market itself, London Stock Exchange Group (LSE: LSE).
FTSE 100 investment firm Hargreaves Lansdown (LSE: HL) gave us an update Thursday. In the three months to 30 September, the firm attracted net new business of £0.8bn, with net new clients numbering 31,000. Assets under management rose 3% from June’s figure, to £106.9bn. And revenue grew 12% from the same period last year, to £143.7m.
CEO Chris Hill said: “These results are against the ongoing backdrop of market uncertainty and highlight the resilience of our business model and client proposition“. That’s what companies like this are all about. Wherever markets are going, up, down, or sideways, whether there’s a stock market crash or a boom, investors are buying and selling assets. And companies providing the means to do that will make their profits.
My only reservation has been the Hargreaves Lansdown share price, which I thought was overheated. But we’ve seen a big correction since 2019’s highs. There’s still a premium valuation, but I see HL as a premium defensive investment.
What stock market crash?
AJ Bell (LSE: AJB) shares have more than doubled since the firm’s market debut in December 2018. That’s even more remarkable when the rise covers the 2020 stock market crash.
The AJ Bell share price fell pretty hard in the early days of the pandemic. But it’s put in one of the quickest recoveries, and it’s now only down a couple of percent since the start of the year.
The firm’s Q3 update showed an 8% rise in customer numbers in the quarter. And over 12 months, the count was up 26%. Net inflows of £1.2bn in the quarter led to total assets under management reaching £54.3bn. Looking back over the firm’s pre-flotation past, it’s managed to grow revenues by 120% over the past six years. Over that same period, profits have almost trebled.
Will we see growing demand for low-cost stock broker services in the decades ahead? With the State Pension deteriorating and people increasingly making their own provisions, I think so.
Buy the market itself?
And then, of course, maybe the best thing to buy is the market maker itself. The London Stock Exchange share price has risen 15% in 2020, while its top index, the FTSE 100, has fallen 21%. So while the stock market crash pushed top share prices down, the company behind it all is up.
The LSE had a good first half too. Revenue rose 4%, with total income up 8%. Adjusted operating expenses did rise, by 8%. But adjusted operating profit grew by the same 8%. The firm’s adjusted EBITDA margin remained pretty much constant, at an impressive 54.6%. And adjusted EPS grew by 11%.
CEO David Schwimmer said: “The Group has delivered a good financial performance in the first half of 2020 against the backdrop of unprecedented circumstances.” It’s proved strongly resistant to the 2020 stock market crash, for sure.
LSE shares are very much on a premium valuation at the moment, with a P/E of around 40. That’s a bit high, even for a defensive stock. It could be one to buy on the dips.