Hargreaves Services Share Discussion Threads

[smithie6] 27/1/2022 10:10

..indeed

"The Group has loaned GBP15m to HRMS in the period to support the German management team to capitalise on strong trading conditions in their specialist markets. This loan will be repaid in the second half of the year."

[harrogate] 27/1/2022 09:52

I think anyone who listened to the IMC yesterday can't help but be impressed and understand why we need to sit tight. It is more than likely from my interpretation of what was said that we will get a further upgrade this year as HRMS continues to operate at high levels.

[smithie6] 27/1/2022 08:52

I wonder if it is a reasonable idea to think of floating the German Venture ?

(I guess on the German stock market)
With its £9 million PAT in 1/2 year it is definitely big enough.

If sold for cash to some company operating in the sector the number of possible buyers must be very small I assume due to the amount of cash needed to make the purchase. (Perhaps big German steel makers, or Tata or Rio Tinto or some other global company).
The price obtained by listing it would surely be higher.

[tole] 26/1/2022 21:07

https://www.fool.co.uk/2022/01/26/this-is-one-of-my-best-cheap-uk-shares-to-buy-now/This is one of my best cheap UK shares to buy now Kevin Godbold | Wednesday, 26th January, 2022 | More on: HSPImage of person checking their shares portfolio on mobile phone and computer Image source: Getty Images.I was right to be bullish on the prospects for Hargreaves Services (LSE: HSP) in an article a year ago.Back then, the small-cap's share price was near 270p and after that, it rose to around 570p by August 2021. However, it then dropped back to lows near 380p in December 2021. And now, after shooting up this morning on the release of the half-year results report, the stock price is about 480p as I write.An improving businessThere's some risk for investors in the move higher today because the valuation won't be as keen as it was. But the main thrust of my old article was I couldn't understand why the valuation was so low given the robust-looking prospects of the business. Hargreaves had been trading well and forecasts for improved cash flow, profits, debt-reduction and revenue growth were all bullish.It seems the stock market began to form a similar opinion as it re-rated the stock higher. But today, my view is similar to last year's given the ongoing news flowing from the company. I still think the valuation looks too low. And the market isn't fully recognising the growth story emerging from the carcass of the company's old set-up and its historical business.Hargreaves describes itself as a diversified group delivering key projects and services to the industrial and property sectors. And today's report contains some impressive figures. Earnings per share rose by 812% compared to the year-ago number. Net debt plunged by 85% to £3m. And the net cash figure ballooned to £8.5m after the company posted a net debt position of £8m last year.Something is clearly going right for the business. And the directors kept positive momentum going for shareholders by increasing the interim dividend by almost 4% to 2.8p per share. However, ordinary dividends aren't the only source of shareholder income from this company. The directors intend to continue to pay additional dividends relating to income from the firm's German joint venture, Hargreaves Raw Materials Services (HRMS).Diversified operationsHRMS supplies specialist raw materials to European customers in several industries. And profit after tax from that business rose to £9m from just £0.9m last year. It was to HRMS that Hargreaves previously sold its coal assets. And that's why revenue to Hargreaves decreased by just over 17% "as expected" after exiting direct involvement in the coal business in December 2020.Elsewhere, profits also increased. The Services division is building a "sustainable profit stream" with stable term contracts and framework agreements in the energy, environmental, infrastructure and industrial sectors. And the Land division focuses on maximising the value of its existing portfolio as well as developing a strong pipeline of new opportunities. Part of that is a renewable energy land portfolio.The directors' expectations "increased materially" for the current and future years. And with the share price near 480p, the price-to-asset value is just over one and the forward-looking dividend yield is above 4%. There are no guarantees for shareholders. And the value proposition isn't as compelling as a year ago. But I think the potential in the business could lead to further gains in dividends and the stock price in the years ahead.

[smithie6] 26/1/2022 20:01

Tiger
In the depths of the accounts do we know about the debt & the assets of the German venture ?

----

Updated
The accounts of the German JV are not incorporated in the group accounts because the group has 49% of the votes, so HSP does not have control so the JV accounts are not consolidated.
The % of the assets/income is 80% if my memory is correct (but I heard 86% mentioned in the presentation. 80% or 86%, not critical)
A top level summary of debt & assets for the German JV is shown on a slide in the presentation.

[smithie6] 26/1/2022 19:58

Perhaps the fall to 400p from 550p was due to opacity about the German venture ?

imo not much info has been provided in past accounts, especially noting that it makes most of the company's profit.

But the fall to 400p let me get back in, & more added today, so it was good for me.

------
Cford Tiger
Congrats to you as a loyal holder/supporter.

[castleford tiger] 26/1/2022 19:33

The 30% I sold and bought back have given me a double helping here.
The numbers are stunning and the price will run on further.
The doubters were questioning why these dropped sub 400p
The market got this very wrong.
There may only be a small group of us but this is a beauty.
Well done all holders

[raggedtp] 26/1/2022 18:16

I suggest everyone interested here watches the Investor Meet Company presentation before bothering to make any more comments. It should answer most of your questions about the three-pronged strategy, each branch with their own champion. And each came across well,I feel. I certainly wouldn't sell any under £6. I'm with you, Tiger, just wish I'd bought even more at 420!

[gargoyle2] 26/1/2022 17:21

From the Investor Meet Company presentation (which has just finished and which was very useful), it seems that there are bank loan restrictions on paying dividends out of Germany, so the 12p special divi seems unlikely to be increased imo, unless bank consent is obtained.

[castleford tiger] 26/1/2022 17:00

Trading a tiny bit over NAV which is crazy.

Review at £6.

Tiger

[smithie6] 26/1/2022 14:29

I agree that there is scope to increase the divi from the German business.

But
imo the RNS states what the divi will be this year, so I don't think you should put too much hope in seeing it increased, although it could happen. (The German business needs more working capital because of its higher turnover, so they might/will be keen imo to retain cash this year rather than increase the divi payment to HSP).

[gargoyle2] 26/1/2022 14:18

There must be scope for increased divis from the German business imo, not only because it's performing fantastically, but also because the 12p special divi from there is paid out of profits from previous years, not current profits. I think the existing 20p forecast is likely to be upgraded after today.

[smithie6] 26/1/2022 12:52

Je je !!

It's a pain, a rising price reduces the divi yield. :-(

Je je.

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Congrats to holders that had the patience to hold for years. I originally got in at 270p but sadly got out around 315p, after which it went to ~550p ! Oops !
Back in at 410p & added today.

[harrogate] 26/1/2022 12:40

It was 5% this morning !!

[smithie6] 26/1/2022 12:31

It pays a nice divi

But it is not 5%.

3.75-4% divi imo.

[phar lap] 26/1/2022 12:08

Target price and forecast upgrade from Singers.

As expected, Hargreaves has reported a very strong set of interims (earnings increasing ninefold) with good progress reported in all areas of the Group. HRMS was the standout performer and looks increasingly likely to remain a significant profit and cash generator for the Group over the medium term. This drives further, material forecast upgrades (PBT and EPS >20% in all forecast years) and triggers an uplift in our TP to 590p (from 560p). With continuing earnings momentum and a 5% dividend yield, Hargreaves is one of our Best Ideas for 2022.

[smithie6] 26/1/2022 10:53

Maybe back the German venture in to HSP ?!!

Doing housing projects etc seems just like a hobby in comparison !
It's the German side that makes the money.

(handles 3/4 million tonnes per year I think it said. Mein Got !!
A big venture. !!!)

[mw8156] 26/1/2022 10:43

would have thought their venture with TW is riskier given the history of that project?

[1tx] 26/1/2022 10:24

I think the previous poster re his £12 prediction is been a touch cynical!The shares were at this level around 2011/12....Thankfully I purchased most of mine some years later sub £2 mainly as a property/asset play.Good news today although I must admit I would like more info on how the German money tree makes its profits;the rest of the business seems to make more modest returns and I have some caution re HS2, although we should get a flow of cash from property realisations.

[gargoyle2] 26/1/2022 10:03

No longer selling the German business. Not surprised, it's a total cash cow and looks very well managed.

[harrogate] 26/1/2022 09:42

Where do you get that nonsense from ? Please show workings

[imjustdandy] 26/1/2022 09:39

Outstanding - back to 12 pounds this year

[davebowler] 26/1/2022 09:36

CHAIRMAN'S STATEMENT

Introduction

I am pleased to be able to report another strong set of results for the Group. Each of the three pillars of the business, being Services, Hargreaves Land and our investment in Germany, now have real momentum behind them and the Group has seen year on year growth in profitability across each business segment.

The last six months have continued to be challenging for many, as the world continues to deal with the impact of the Coronavirus pandemic. Throughout this time, I have been particularly impressed with the dedication and professionalism of our employees and I would like to thank them once again for their support.

Momentum

The first half of this financial year has been a period of demonstrable momentum in each of our businesses. Whilst, the Group's German Joint Venture, Hargreaves Raw Materials Services GmbH ("HRMS") has continued to capitalise on favourable market conditions, it has also delivered sustainable operational improvements within DK Recycling.

The Services business has started work in earnest on HS2, with monthly revenues now over GBP2m from that contract. The announcement of the successful listing of Tungsten West plc ("TW") has provided further impetus to the business which has a 10 year mining services contract with TW in addition to the right to eight annual payments of GBP1m, the first of which has been received.

Hargreaves Land has made substantial progress on both the commercial and residential aspects of the Unity Joint Venture. More details are set out below in the Chief Executive's Review. This is in addition to the news that Brockwell Energy Limited, a former subsidiary of the Group, has obtained financial close on an Energy from Waste plant which is to be constructed at our Westfield site. This represents the start of the development of the Group's renewable energy land assets.

Results

As expected, Group Revenue reduced to GBP76.1m (2020: GBP92.0m) following the decision to end all material coal related activities in December 2020. The Group's Profit before tax has increased substantially to GBP10.4m (2020: GBP1.1m). While the majority of the improvement in profit is attributable to the continued strong performance of HRMS, I note that both the Services and Land businesses have contributed a combined GBP1.3m of this growth. Basic earnings per share have increased over ninefold to 31.0p (2020: 3.4p). Further information on trading is given in the Chief Executive's Review.

Cash and debt

The Group held net cash of GBP8.5m on 30 November 2021, compared to a net bank debt position of GBP8.0m twelve months ago. This improvement was largely due to the decision to exit coal in December 2020, which released a substantial amount of cash from working capital.

The Group has loaned GBP15m to HRMS in the period to support the German management team to capitalise on strong trading conditions in their specialist markets. This loan will be repaid in the second half of the year.

Total net debt, which includes leasing debt of GBP11.5m (2020: GBP12.8m), was GBP3.0m compared with GBP20.8m on 30 November 2020. The Board is anticipating net debt (including leasing debt) to be higher at the year end due to the anticipated investment in leased equipment for the HS2 contract, but the quantum is dependent on the timing of delivery. The Group does not expect to have any net bank debt at the year end.

Dividend

The Group's performance has enabled the Board to increase the interim dividend by 3.7% to 2.8p (2020: 2.7p). The interim dividend will be paid on 6 April 2022 to shareholders on the register at 25 February 2022. Subject to HRMS maintaining the requirements of its borrowing arrangements, the Board intends to continue to pass through an additional 12p per share dividend from HRMS to Hargreaves' shareholders annually for the next few years as previously undistributed profits in HRMS are repatriated to the Company. Such additional dividend would be declared and paid alongside any final ordinary dividend following shareholder approval at the 2022 Annual General Meeting.

COVID-19

The Group has traded resiliently throughout the pandemic. The Board does not consider the pandemic to be a material threat to its operations at the present time.

Strategy and Shareholder Value

The Group has developed three strong, defined pillars through which to create, deliver and realise value for shareholders.

Services

The Services business is building a sustainable profit stream through stable term contracts and framework agreements in the Energy, Environmental, Infrastructure and Industrial sectors. The Group currently has over 50 such contracts in place to support the reliability of future performance. The business is concentrated on organic, capital-light growth, with a particular focus on contract selectivity and higher margin activities.

Hargreaves Land

This business is focused on maximising the inherent value of its existing portfolio, including Blindwells and Unity, as well as developing a strong pipeline of new opportunities. In addition, the business is now starting to deliver value from its renewable energy land portfolio.

HRMS

This business is continuing to take advantage of strong trading conditions leading to a material increase in the Board's expectations for profits in the current and future years. It is now focused on sustaining an increased level of profitability in DK Recycling following its acquisition in December 2019 and securing contracts to increase the utilisation of its Carbon Pulverisation Plant.

In July 2021, I stated: "the Board believes that its investment in the HRMS joint venture has the potential to deliver substantial shareholder value in the next few years. The Board considers it likely that HRMS would benefit in due course from being part of a larger, more specialised business and it plans to explore strategic options for HRMS with its professional advisors over the course of the next several months." Following such discussions and after consultation with the German management team, the Board has decided to continue to support the development of HRMS. The Board believes that the inherent value of HRMS can be most effectively demonstrated by trading successfully through commodity cycles. Over the medium term the Board considers that HRMS will be a material profit and cash generator for the Group and that it has further value opportunities to exploit.

Outlook

The first six months of the year have been positive for the Group and have built on the back of the strong year ended 31 May 2021. The Group has now moved on from its historic activities and has a clear strategy to create, deliver and realise shareholder value in each of its businesses. The Group has real momentum behind each of its businesses, and the progress made in HRMS has encouraged the Board to increase its expectations materially for the current and future years. I look forward to reporting further progress in the second half of the year.

Roger McDowell

Chairman

[imjustdandy] 26/1/2022 09:34

Too cheap - incredible results

[rimau1] 26/1/2022 07:58

All 3 businesses are absolutely flying, cost plus contracts in services too and i note we are now keeping HRMS.