Stock in Focus: Has Hargreaves Services turned a corner?

Wednesday, Sep 09 2015 by
Stock in Focus Has Hargreaves Services turned a corner

Shares in coal production and processing firm Hargreaves Services have gained 23% since hitting an all-time low earlier this summer. The firm’s StockRank has also moved higher in recent weeks.

It’s a change in trend following a 50% decline seen over the last year, during which low coal prices and falling demand from UK power stations raised serious questions about the firm’s long-term future. Those problems still remain, but the market seems to have started to believe that the company may find a solution.


Has Hargreaves finally reached a turning point and become a contrarian buy?

Encouraging signs

Hargreaves’ management has certainly been making remarkable efforts to reposition the firm for a post-coal future. Early signs suggest to me that they could succeed.

One factor in shareholders’ favour is that Hargreaves’ chief executive, Gordon Banham, is the firm’s fifth-largest shareholder. Mr Banham’s 7.1% stake in the firm is currently worth just short of £8m. More importantly, Mr Banham’s dividend income of £682,000 last year was 54% more than his £443,000 salary. I believe the boss’s interests are well aligned with those of his shareholders.

What happens now?

The first stage of the group’s restructuring is now complete. Hargreaves has sold, downsized or optimised as many of its existing operations as possible. In the process it has eliminated most of its debt and built a £44m cash pile.

The next stage is to intensify efforts to develop the firm’s property assets, renewable energy opportunities and overseas coal consultancy business. Hargreaves is targeting opportunities in housebuilding, wind energy and hydroelectric power. The firm has also signed a deal to transport most of the biomass fuel used by Drax.

These developing operations will hopefully be funded by the run-off of Hargreaves’ coal business, which the firm believes will remain viable in some form until 2020.

What about the financials?

I was cautiously impressed by Hargreaves’ full-year results last month. Interestingly, so were Stockopedia’s computers. Over the last 30 days, Hargreaves’ StockRank has risen by 22 to 85, making it one of the biggest StockRank movers of the last month.

Hargreaves now has a ValueRank of 98 and a QualityRank of 72, suggesting it could be an interesting contrarian opportunity. Even the firm’s momentum is improving.

Strong value

Hargreaves scores highly…

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Hargreaves Services plc is engaged in sourcing, producing, processing, handling and transporting carbon-based and other bulk materials throughout the United Kingdom and Europe. The Company's principal activities are the provision of haulage services, waste transportation, mineral import, mining and processing, together with specialist earthworks and related activities. Its segments include Coal Distribution, Industrial Services, Logistics and Specialist Earthworks. The Coal Distribution segment provides coal, coke, minerals, smokeless fuel and biomass products to a range of industrial, wholesale and public sector energy consumers. The Industrial Services segment provides contract management services to clients in materials handling and a range of other industrial sectors. The Logistics segment provides bulk logistics to customers across the United Kingdom. The Specialist Earthworks segment provides earth moving, civil engineering and infrastructure services across the United Kingdom. more »

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1 Comment on this Article show/hide all

hayashi22 10th Sep '15 1 of 1

That's a very good piece. So well done on putting it together. I would like to know a bit more about the company's land bank which might provide value if sold off to housebuilders/industrial site developers, or for use by say wind farm operators.
I'm sure the company is on the case.

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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have a lingering interest in commodity stocks. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  My investment focus is increasingly on developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. more »


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