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Hargreaves Services' profits slump

RESULTS: A six months to forget as the coal miner and supplier reports a collapse in profits as it is hit by a mine closure and major fraud.
March 1, 2013

Coal supplier Hargreaves Services (HSP) had six months to forget as the closure of operations at Maltby deep pit and the discovery of fraud in its Belgian operations resulted in a £29m hit to first-half results. However, once you strip these items out underlying pre-tax profits actually rose 9 per cent to £22.7m and the board underlined its confidence in an improved second-half performance with a double-digit dividend increase. If there are no more surprises house broker N+1 Singer expects full-year adjusted pre-tax profits of £52.9m and EPS of 131p, up from £47.5m and 122p, respectively, in the year before.

IC TIP: Hold at 850p

In the energy and commodities division revenues were up £41.5m to £244.6m and underlying profit increased by £1m to £13.9m, driven by strong demand from energy companies as falling coal prices made coal-fired power stations more profitable, although sales to power stations are lower margin. Management added that investigations into the fraud in Belgium confirmed it was an isolated issue.

Hargreaves' production division was hit by the Maltby closure, but, excluding this, revenues were up £8.3m to £45.7m, driven by demand from the energy and steel industries. The Tower open mining joint venture was hit by record rainfall, but expect a much improved second-half performance here. There was little change in revenues and profits in the transport division, while the industrial services division reported a surge in revenues and profits from consulting on biomass conversion projects.

HARGREAVES SERVICES (HSP)

ORD PRICE:850pMARKET VALUE:£234m
TOUCH:845-850p12-MONTH HIGH:1,278pLOW: 530p
DIVIDEND YIELD:2.2%PE RATIO:17
NET ASSET VALUE:457pNET DEBT:84%

Half-year to 30 NovTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201132313.631.06.00
2012385-9.1-28.46.90
% change+19--+15

Ex-div: 6 Mar

Payment: 28 Mar