Shares in Hargreaves Services (HSP) were marked down after worrying half-year results showed the scale of the fall-away in demand and price for the company's core product, coal. Chairman Tim Ross describes the market conditions as "unprecedented and very challenging", but the company expects the price of coal to rebound later this year. This would reduce the margin pressure on all products and help bring Hargreaves' loss-making thermal coal operations - currently suspended - back online.
In the meantime, management has sought to simplify the business, booking a £17m charge from the closure of the Monckton coke works and selling off its Imperial Tankers operation at a profit, proceeds from which were used to reduce net debt by 58 per cent. To maximise returns, Hargreaves will utilise production sites with the lowest costs and highest yield of speciality coals, while generating value from its property and renewable portfolios.
Hargreaves' positive cash generation enabled the board to implement a rolling share buyback programme. And cash balances should be further enhanced by streamlining of the management structure and a merger of the production and the energy/commodities divisions.
Broker N+1 Singer expects 2015 EPS to fall to 102p, ahead of a precipitous drop to 48.8p in 2016.
| HARGREAVES SERVICES (HSP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 523p | MARKET VALUE: | £168m | |
| TOUCH: | 520-524p | 12-MONTH HIGH: | 907p | LOW: 520p |
| DIVIDEND YIELD: | 5.1% | PE RATIO: | 6 | |
| NET ASSET VALUE: | 474p | NET DEBT: | 27% | |
| Half-year to 30 Nov | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 460.5 | 29.7 | 63.1 | 8.8 |
| 2014 | 351.2 | 20.3 | 38.7 | 10.0 |
| % change | -24 | -32 | -39 | +14 |
Ex-div: 26 Feb Payment: 27 Mar | ||||
