Hargreaves Services Share Discussion Threads

[muckshifter] 04/2/2022 08:01

There you are then Smithie, that 98% looks conclusive in terms of sale of the ground slag residue to cement companies as an additive, which I posted about a few days ago.

But, just for clarification, I don't think the German subsidiary will turn out to be worth much.
Good luck with your shares anyway.

[smithie6] 03/2/2022 23:05

Ah ha

From the website of the German JV, for its pig iron section, in English & German.

hxxps://www.dk-duisburg.de/en/recycling-en/

"We combine sustainability and quality in a process unique to our company"

:-)

(To work with liquid iron you need special equipment, & a lot of heating power. Need deep pockets to set up a system. Which would put off most possible competitors. And the JV process is "unique", interesting)

----
"DK Recycling is probably the oldest industrial recycling company in the world. "

-----

"Additionally, the DK recycling process offers many advantages from an economical point of view as the waste disposal costs have risen drastically for companies due to the new environmental regulations."

(& with the Green part as part of the current coalition Govt. for Germany those regs. will surely get tougher or be enforced more)
-----

"Our own developed DK-process enables a utilization percentage of 98% of the delivered residual materials."

[smithie6] 03/2/2022 22:55

It is owned by HSP ?
If HSP own it do we know if HSP plan to sell it or keep & get the income ?
If sold is there some profit in it ?

(I've read different company accounts & I found very little about this Bridlington project; perhaps I should be looking at the co. website rather than the accounts)

(In past annual accounts HSP has always said it would sell projects after development, not keep them)

[dogwalker] 03/2/2022 18:58

Thanks scobak.

[scobak] 03/2/2022 16:58

Construction was still ongoing in early January. Units look big. The Lidl signage was covered up in plastic and on the ground. I know this doesn't help greatly but progress is being made.

[smithie6] 03/2/2022 08:50

Anyone know the status of this ?

"Bridlington which commenced construction in December 2020. With a Gross Development Value of GBP9.5m",

Already sold, or might it be sold this fin. year ?

[smithie6] 02/2/2022 22:23

Cash situation

From last annual results
"The Group had GBP28.3m of cash at bank at 31 May 2021"
& no debt if one excludes leases for machinery for HS2 earth moving contracts.

HSP
end May 2021 £28 million
End May 2022 = £28 + ~£14 million = £42 million (if one excludes machinery leases & if the JV transfers money to HSP)

End May 2023 = £42 + £14 = £56 million.

With a cap. value of ~£150 million +/-X the cash held on 1st June 2023 could/should be ~£56 million.

Perhaps pay out ~£1/share in 2023 (=£33 million) if the co. has no need for the cash..

Or might it be 2024 & in 2022 the JV uses the cash generated to pay off most/all of its bank loan, 21.1 million €. (The JV has other debt but the big part seems to be working capital & funded by the sale/supply contracts).

If HSP had £50 million of debt it could not pay out chunks of money to shareholders.
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Of course it depends on the JV transferring the money to HSP, when it has surplus cash & complying its loan covenants. (Paying off its bank loan should delete those limits !)

[smithie6] 02/2/2022 21:45

If the JV can keep up the profit of the last 2 periods of 6 months to make £18 million PAT & the rest of HSP can make just £2 million PAT (incl. £1 million PBT from Tungsten West).

Then with a PAT of £20 million the P/E at 480p/share & 33 million shares is ~8. And about debt free if exclude HS2 machine leasing liability, well, cash positive imo at end May '22.

Each to own view but it is too cheap imo.
The JV is a big cash machine & 86% of this will end in HSP accounts one day & then in to shareholder pockets. If £14 million/year is returned from the JV (+ the £4 million to pay the 12p divi) then I'm sure the sh. price will rise.

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The big 28% shareholder at HSP will want to see a benefit to themselves (& hence the rest of the shareholders) & they have enough votes to push, if needed, for it happen (when the time is right) if the co. doesn't benefit the shareholders with the cash build up.

[smithie6] 02/2/2022 21:24

£1 million/year pure profit !, for this fin. year & the next 7 years. From Tungsten West.
Excellent.

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You , or the broker's analyst, seem to expect 0 or £1m profit from anything else apart from the JV & that £1 million from Tungsten West. And since Tungsten West pays this £1million then the land & services divisions will make 0 profit ! ('if' the broker's analysis is correct)

If they can't make money from the land division or the HS2 earthworks maybe they need to
"Shake it up" !!

hxxps://youtu.be/GmLRDdcqE0U

(A small play on words there ;-) )

[harrogate] 02/2/2022 18:33

The £1m is pure profit for 8 years. The mining contract when it starts next year should produce another £1.5m profit per year. Both these amounts are included in the broker numbers - which of course you refuse to look at and continue to make up your own !

[smithie6] 02/2/2022 18:27

Anyone understand the Tungsten West payment of £1 million, due this financial year ?

Is it a royalty type payment without needing to anything in return or is it a minimum payment for mining services work (on which HSP might make just 10% PAT) ?

"Drakelands Restoration also agreed to enter into the Mining Services Contract with Hargreaves UKS, which includes a fee of £8.0 million payable at £1.0 million per annum for the eight-years following commencement of mining operations or from 29 November 2021, whichever comes earlier."

[smithie6] 02/2/2022 18:20

Yes I assume the JV will hit £9 million in H2

'cause the directors' write in the H1 results
- profits materially increased for this year & for future years
- ie. its sustainable

The JV has 'already' ! clocked up two succesive 6 month periods with £9 million PAT profits. And zinc price has since risen, & pig iron price, & the increasing production of cars/steel in Europe in 2022 should underpin those prices imo.

& the dirs. are very bullish. Logical to listen to them imo, they have the best info.

[castleford tiger] 02/2/2022 18:02

You assume that they will hit 9 again in 2nd half !
Also tax could be 3/4 m extra

Look the shares are cheap.
Buy the dips I do

[smithie6] 02/2/2022 13:06

Ah yes, I see the Americans have a groundhog (marmot) out of its home, in their arms, .....

[harrogate] 02/2/2022 12:57

Very appropriately it is Groundhog Day today :)

[smithie6] 02/2/2022 12:48

Tiger

Do you think that with the JV producing a lot of cash (H2 PAT £9 million + H1 PAT £9 million (9+9=18) + depreciation (if no on-going spend to replace the equipment); the carbon crushing kit is new so that incurrs a deprectn charge)

-£4million paid to HSP each year
...so, perhaps £14-17 million of unused cash,

Which can be used to either
- pay down the bank loan at the JV (=21.1 million EUROS)...& subsequently pay more profit up to HSP (& freeing up of retained profits)

- pay down the loans from HSP to the JV

So, surely the JV can provide in next 1-3 years tens of millions of £ to HSP, whether called JV profit or repayment of loans.

And HSP does not need to hold cash since it is about debt free or cash positive if ignore HS2 equipt lease agreements (covered by the contract income, so not a real debt). So hopefully HSP could then pay out more to its shareholders.

My logic is correct ?

[castleford tiger] 02/2/2022 07:20

I am convinced the shares are undervalued and that upgrades are more likely than not.

It makes no difference to me when the price "gets there" because it will.

I took some cash off the table at the top of the last peak but as i said in my posts i came back on the silly dip that followed.

The tax charge could be higher this year but the EPS quoted does look low.


thanks in advance

[smithie6] 01/2/2022 23:26

H1 results. 27 January "2021" (1 year ago)
"HRMS is becoming an increasingly important component of the overall value of the Group and its future growth and cash generation is a key factor for the Board in considering how to deliver shareholder value"

-----

RNS
21 April '21

Talking about the JV.

"Whilst favourable market conditions have benefitted the business, the Board is confident that the overall trend is sustainable following extensive work to reduce costs and improve operational efficiency at DK. These developments are such that the Board now expects the contribution from its joint venture to Group profits to be materially greater than current market expectations"

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....the co. keeps telling the mkt that DK recycling, which produces pig iron & zinc (& apparently some powder is sold to the cement sector), is now more efficient (& hence the JV is more profitable & more valuable).
(& HSP said that the coal sale to the JV was in part to help the JV obtain clients in the UK, the high % increase in tonnage sold by the JV perhaps indicates some growth/success in sales to the UK).

But the market imo partly refuses to take note.

[smithie6] 01/2/2022 21:47

Zinc price data.

HSP financial year 2019-2020.
30th May 2019. 2000$/tonne
30th May 2020. 3000$/tonne.
50% rise over the year.

HSP financial year 2021-2022
Started at ~3000$/tonne.
Price now 3670$/tonne.

'if' rises by 50% over the fin. year '21-'22, as per the previous year, the price at the end of the fin. year '21-'22 would be ~4500$/tonne.

The price chart is a straight line trend.

[smithie6] 01/2/2022 21:25

Btw
On 14th Oct. the zinc price had a big spike & hit 3800$/tonne.

If the dealers at the JV were awake, & HSP says they are very switched on, they would have forward sold lots of the companies production.

But any sales would only have been counted in the H1 accounts for 2 weeks in October & the month of November. So any impact would have been negligible. (Can not book as a sale, with its profit, in the accounts until delivered).

And in any case the spot price now is almost at 3700$, almost the same as the price on that spike on 14th Oct. '21.

[smithie6] 01/2/2022 20:38

Thanks for trying to send the broker's note but the link does nothing.

-----
Price of zinc

1st Dec 2021 (= first day of 2021-2022 fin. year)
2800$/tonne

Price now. 3600$/tonne. (Well, about to hit 3700$, producing more profit)

The increase is 800$/tonne.

The price increase is roughly a straight line trend; & gives the impression that the rise will continue (because of greater consumption as production of cars in Europe increases in 2022. (Zinc plated bodies))

Increase in price from selling if sell 1 year's of zinc at 3600/tonne instead of 2800$/tonne
= 6000 tonnes x 800$
= 4.8 million $.

= ~£3.5 million

This is possible/likely EXTRA annual profit at the JV, before tax. 86% for HSP, just the zinc sales !

The JV sells ~6000 tonnes/year. (there are costs involved in recycling/obtaining it)

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Note, the price of ~2800$/tonne was the LME zinc price on 1st Dec. 2020. To forward sell 40% of the annual production would have been at lower prices. The longer in the future and the price gets lower. Producer like to forward sell to reduce their risk, & to have known turnover & sales, I think.

So, the increase in profit will be bigger.

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Harrogate, you say that the profit from the JV will have fallen because the forward sales of 40% of annual sales will have expired (& you assume that prices were then lower, the truth is the reverse) Based on the price data from LME (London Metal Exchange). (& pig iron prices have also risen).

The company has said,
- efficiency improvements achieved at the JV
- profits materially up this year & substainably (= on-going, not a 1 off year)

With respect, the data & the LME says, imo, that you are wrong.

========

Is anyone else looking at prices for zinc & pig iron or everyone is just too lazy !!!!

The JV in Germany is where the HSP profit is being made. Shareholders need to look at what it does & what it sells. It is surely much more important to the share price than Blindwells or the Unity project.

[harrogate] 01/2/2022 18:44

Read the broker note !!!!

[smithie6] 01/2/2022 18:27

Harrogate
"The broker estimates - all brokers - is for around 55p for this year ( to May 22). This was after it was upgraded from around 45p following last weeks RNS."

How do consider that the company stated in the last years' annual account's an adjusted "underlying basic EPS of 70.7p" ?

"Underlying Profit Before Tax and underlying basic EPS is stated prior to exceptional items, fair value adjustments and impairment of intangible assets"

& that the profit from the JV is expected to increase this year from £13 million PAT to £18million PAT (justification H2 '21 + H1 '22)

& that the co. has just stated, 'profit will be "materially" higher in the fin. yr to 1st June '22, & sustainable this year & future years'

So, if one assumes 70.7p increases to perhaps 80p.
Is the number of 55p correct or are there large adjustments " exceptional items, fair value adjustments and impairment of intangible assets" ?

& should the market base valuation with or without "exceptional items, fair value adjustments and impairment of intangible assets" ?

(there will probably be an exceptional charge for a bonus to the MD & FD of HSP for the marked increase in the PAT of the JV !! (arguably not justified at all since neither dir. is an exec. dir. at the JV) (although strictly speaking the profit from the JV does not count as profit for HSP imo because the JV is valued on its change in shareholder assets, the accounts of the JV are not consolidated in to the HSP accounts) but fair value adjustments should be positive imo & I can't see any impairment of int. assets)

[smithie6] 01/2/2022 18:22

Harrogate

"but they have already said the hedges that helped the JV in H2 last year and H1 this year have run the course so it will be harder for them"

I don't agree at all.
Zinc prices, for example, have gone UP since they agreed a price in advance of future sales for 40% of the annual sales of zinc.
Note, the forward selling states "zinc", it does not mention pig iron.

The price for zinc has been on a steady up trend since the Covid crisis first hit the zinc price.
The price has doubled.

The current price is nudging 3700$/tonne. Highest price since Covid arrived/hit.

You agree ?

( imo they might frequently agree forward sales at fixed prices, since they are a producer, they need to sell it, & forward sales agreements gives some stability & reduction of risk)

[smithie6] 01/2/2022 18:13

Morningstar valuation ratios for HSP for current year can be seen here for free

hxxps://www.morningstar.com/stocks/xlon/hsp/valuation

P/E & P/EBITDA ratios are 5-6 !!

Their computer analyis thinks HSP is cheap.