Business & Investment

Hargreaves Services – Stay away from coal to help build sustainable growth

Announcement of Christmas Eve from Hargreaves Service (LON: HSP) It caught my attention.

Further investigation into the impact of the content of that statement convinced me to easily outline this diverse group. This group serves the industrial and real estate sectors.

Global service

Although the group is headquartered in Durham, it actually has about 2,000 employees working on various projects around the world.

That Industrial services We outsource bulk material handling, logistics, mechanical and electrical engineering to key industries such as electricity, steel, port operations and refineries in both the UK and Southeast Asia.

This group processes and distributes various materials such as solid fuels, wastes and minerals. Its bulk logistics team is one of the UK’s leading service providers to the environmental services and minerals sector.

Today, its solid fuel trading business appears to meet the ongoing demand in the UK for cement, brick and sugar production, to name a few key industries. Coal remains an indispensable source of energy. It is also essential for many home heating needs, such as in some schools, prisons and hospitals.

Hargreaves’ civil engineering professionals provide civil engineering, advice and contract services for large infrastructure projects in the UK.

Its history is in coal mines, but its future is not

The group has a long history of mining, but in the summer of 2020 all mining operations were shut down.

However, it retains skills developed from its long history and currently provides operations management, ground engineering, land restoration, and aftercare services to the mining and quarrying sectors.

We have a dedicated team of experts to operate, restore and manufacture safe mines, quarries and landfills throughout the UK.

Land regeneration

The group manages more than 13,000 acres of land across the UK and is leveraging its extensive expertise in brownfield rehabilitation in abandoned areas to achieve significant value from its portfolio.

Cash sales define a new direction

Last Thursday, the group announced that it would sell its entire inventory of specialty coal to HRMS, an independently funded German joint venture, for £ 24m. This eliminates the significant direct business benefits to coal.

The remaining coal inventory will then consist of heavy industrial coal and will be sold to third parties for the rest of the current fiscal year. Coal inventories are expected to decline significantly by May 31, 2021, the end of the current fiscal year.

It is important that the group also eliminates the bank’s net debt by the end of this fiscal year.

Next month’s interim settlement

On Wednesday, January 27, the company will need to announce its interim results for the six months to the end of November. We already know that delays in the HS2 project will reduce the profitability of civil engineering.

The forecast for the first half is that revenues and profits will be below the 2019 level.

However, in the second half of the year, good contract news on the industrial services side combined with developments in the land sector will increase profits from £ 4.9m before tax to £ 7m for the year ending May 2021. .. £ 191m is expected to be £ 31m lower. Revenue is estimated at 19 pence per share and dividend per share is estimated at approximately 20 pence.

Brokers quote for the next two years

James Tetley, an analyst at N + 1 Singer, a group broker, estimates that 2022 and 2023 revenues will be £ 195m and £ 210m, respectively.

In the same time frame, he had an adjusted pre-tax profit of £ 10m in 2022, followed by £ 10.5m, a profit of 26.5p, equivalent to 27.7p per share, and an expected 20.5p per share, We expect it to cover the 21p dividend.

Considering that last Thursday evening’s closing price was 263p, it’s 13.8 times this year’s earnings, 9.9 times the 2022 forecast and 9.5 times the 2023 earnings.

Incredible yield

But what is worth considering is the fact that this needs to be a big investment attraction. At 263p, the strain produces 7.6% cracking.

The number of issued shares is 32,282,346, of which 856,410 are held by the Ministry of Finance.

Large holders include Harwood Capital (28.50%), GB Holdings (2021) Ltd (8.20%), Downing (7.23%), Schroder Investment Management (6.03%), Canaccord Genuity Group (5.00%), Axxion SA (4.96%), Artemis Investment Management (4.55%), and NFU Mutual (4.21%).

In February of this year, shares in the group with a capital of £ 85m were trading at around 325p as they returned above these levels in early 2021 following last week’s news.

We have set the target price to 325p.

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Hargreaves Services – Stay away from coal to help build sustainable growth Hargreaves Services – Stay away from coal to help build sustainable growth

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