Despite the release of record full-year results, the share price of Hargreaves Services fell by another 21 per cent after the group raised the prospect of its Maltby Colliery in Yorkshire being mothballed, or even closed, because of the gas safety issues identified in May that sent the group's share price tumbling. A decision on Maltby is expected in October, but group chairman Tim Ross said either action would have "minimal impact on growth prospects", while analysts at N+1 Brewin share our view "that the current valuation is low whatever the decision".
Hargreaves has budgeted for an £8m loss from Maltby for the 2013 year-end, assuming that the planned move to the T125 coal face is simply delayed. But if the mine was forced to close, the group would incur non-cash impairments estimated at around £40m, although any cash-costs, including redundancies, would be more than offset by the sale of plant and machinery. Importantly, Hargreaves would not incur any penalties if it was unable to fulfil its supply contract with the DRAX power station, and it has already sourced alternative supplies for its Monckton Coke Works.
The remainder of the group's businesses are performing solidly and operating profits rose 15 per cent to £49.5m, although the outlook on coal prices is negative.
Assuming status quo at Maltby, N+1 Brewin predicts 2013 pre-tax profit of £46.9m and EPS of 113.5p (from £47.5m and 121.9p in 2012).
| HARGREAVES SERVICES (HSP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 542p | MARKET VALUE: | £148m | |
| TOUCH: | 541-544p | 12-MONTH HIGH: | 1,278p | LOW: 530p |
| DIVIDEND YIELD: | 3% | PE RATIO: | 5 | |
| NET ASSET VALUE: | 493p* | NET DEBT: | 57% | |
| Year to 31 May | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 405 | 17.9 | 46.7 | 10.3 |
| 2009 | 503 | 26.2 | 68.5 | 11.8 |
| 2010 | 460 | 30.7 | 77.5 | 13.5 |
| 2011 | 552 | 36.9 | 91.9 | 15.5 |
| 2012 | 688 | 43.1 | 109 | 17.8 |
| % change | +25 | +17 | +19 | +15 |
Ex-div: 7 Nov Payment: 12 Dec *Includes intangible assets of £29.8m, or 109p a share | ||||
