Hargreaves Services Share Discussion Threads

[harrogate] 14/10/2022 13:59

Germany is so material here that I suspect they will wait as long as they can and get the most up to date numbers and more importantly outlook before they can and need to update up or down

[castleford tiger] 14/10/2022 13:26

If there is to be a material under shoot of brokers forecasts or an increase they would notify the market

[red ninja] 14/10/2022 11:49

The Company's AGM will be held on 27 October 2022 at 11.00 a.m. at Prior's Hall Durham Cathedral, Durham, DH1 3EH.

Thus, not too long to wait to get a bit of a steer from the company as to how close it is performing in relation to management/broker expectations.

[smithie6] 14/10/2022 09:12

Indeed.

(But I think they only got part of that £8 million back)

Yes, pros & cons.

I was just trying to give some balance.

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If you think it is a buy, why are the dirs. not buying ?

[castleford tiger] 14/10/2022 08:24

Think they got that 8 million back !

You are very glass half full at the moment.

I think risk reward is in investors favour right now.
why don`t so you sell or reduce and i buy.

That`s the market.

Tiger

[smithie6] 14/10/2022 08:18

Is there any risk of any bad debtors during the arriving German recession noting that its turnover & hence receivables is very big ?.

In the past HSP got hit by bad debts from the tungsten mine in Devon (£8 million !) & British Steel going in to administration. So, reality shows that bad debts can happen.

[smithie6] 14/10/2022 08:13

Hi
One of my points was that NAV is not always a good way to value property related shares & I gave some examples.

Lse:dci for example currently has a NAV around 12p, if my memory is correct, & a share price of 3-4p.

Ignoring the last reported NAV, the real value of the co. is clearly much lower after pig iron has halved in price & the housing sector has slowed according to mortgage lenders (& as shown by the charts for shares of housing builders).

What is a fair correct share price ?
good question.

[castleford tiger] 14/10/2022 07:48

Smithie6
you say......

but some posters seem to think that the NAV will be paid out in this financial year, but that only happens if the co. is sold in this fin. period.

Who has suggested this?

I was drawing a comparison between current share price and NAV.
I went on to say that with the forecast eps of 70p, NAV would grow.

You felt it would fall and gave falling land values as a reason.

The cash situation has been explained and the inter company loan to Germany etc.

We are all aware that the market is undervalued in these troubled times.

However i see it as an opportunity to invest

tiger

[smithie6] 14/10/2022 07:25

Not as much as you.

---
What I have written is true, look at the accounts if you want.
Pros & cons to any share.
Closing one's eyes & believing that only pros exist..... is a bit stupid imo. But each person to their own views.

[smithie6] 13/10/2022 21:53

Pros & cons to any situation

But some posters seem to think that the NAV will be paid out in this financial year, but that only happens if the co. is sold in this fin. period.

Worth noting imo that 1/2 of the NAV is trade receivables, it is not yet real money in the bank.
And the amount of payables is 1/2 of the cap. value.
That shows that there are some sizeable risks. And the real accounts from 2015-20 show that risks can in reality turn in to real painful losses/write offs.

[castleford tiger] 13/10/2022 20:38

Smithie6
For the NAV to fall the company needs to either make a loss for the period or have massive write downs on assets .
I think the company will still make a big profit in excess of 50 p a share .
As the brokers are going for 70p there is wriggle room here.
The cash pile could have grown as the lending to Germany unwinds.
As Harrogate says the land is valued at cost not as building land.
I feel a dividend of 20p covered 2/3 times by earnings would still see NAV well over 600p.
No debt so no expensive interest bill there.
In fact the cash may earn a bob or two.
In my opinion the negativity in the markets is over played and great companies are far too cheap.
The market will eventually come back and till then the 6% net is a good return .
Tiger

[harrogate] 13/10/2022 15:15

But I should add WTFDIK!

[castleford tiger] 13/10/2022 15:12

The broker forecast for 2023 is 70p EPS. This includes a fairly large reduction in HRMS profits for this year to £16.5m from £27.3m. Given that we know that H1 will benefit from the trades they had booked and a few hedges the question is will the downturn in H2 be more than this upside. We don’t know but I expect them to have a cracking H1 with a much lower H2 but still hit 70p. And the slowdown will allow a significant handout to shareholders as explained earlier

BUT POSTERS EXPECT NAV TO FALL???

Madness

[harrogate] 13/10/2022 15:10

The broker forecast for 2023 is 70p EPS. This includes a fairly large reduction in HRMS profits for this year to £16.5m from £27.3m. Given that we know that H1 will benefit from the trades they had booked and a few hedges the question is will the downturn in H2 be more than this upside. We don't know but I expect them to have a cracking H1 with a much lower H2 but still hit 70p. And the slowdown will allow a significant handout to shareholders as explained earlier

[red ninja] 13/10/2022 14:28

Smithie6,

They forward sold 60% of the pig iron in H1 and they hedged 50% of the zinc which should both mean some of those elevated profits going into May 2023 results.

The company states that even when all this froth is worked out that profits from trading will continue to be higher than 2 years ago.

HRMS can continue to transfer the 12p special dividend from accrued value.

If trading in HMRS is not worthwhile they can sell down their sizable inventory and repatriate a lot of cash to Hargreaves Services which can pay it out to shareholders.

Listen to the IMC interview if you don't accept Downing's view.

In land a lot of the coal land in Scotland are/will be used for coal sequestration and renewables which are largely unaffected by land prices.

Yes, not everything is clear, but at around £3.20 there seems plenty of value more than covering that share price.

Red.

P.S I've stated my position, I'll let others argue the toss here.

[castleford tiger] 13/10/2022 13:14

i will respond fully

Red Ninja is closest here.

tiger

[red ninja] 13/10/2022 12:41

A lot of the below is covered in the IMC interview, but here coming from Downing.

HTtps: //assets-us-01.kc-usercontent.com/8c961317-6aee-00a7-e4b6-ae38cd847d2d/bcb3ac01-a99d-4293-8988-cc972e97599e/DSM%20Investor%20Letter%20Aug%2022%20Final.

pdf

Note, I've detached the pdf from the end of the link to be able to post it.

Downing Strategic Micro Cap I.T August Quarterly Investor Letter comment :-

HARGREAVES SERVICES has earned its spot as the top contributor year to date and looks well protected from our concerns. Revenues in Hargreaves Land are predominantly earned from developers of housing, commercial and industrial space. The structural demand drivers for space are well documented and relatively certain, in our view. Moreover, Hargreaves is not flooding the market with land from its landbank – the release of phases at Blindwells will be slow and steady. Pricing should improve, both as the estate becomes more established, increasing prices for later phases, but also with general inflation. In Hargreaves Services, there are contractual mechanisms in place to pass through inflationary costs. Management has navigated onerous contracts in the past and have been careful to avoid these issues in the future. For this reason, we also expect that divisional margins should be robust.

There are a few moving parts in cash this year, particularly with the deployment of Services assets onto HS2 and the lockup of significant levels of working capital in the German associate.

The group is free from any bank debt and held net cash of almost £14 million at the year end. In addition, there was an outstanding loan to the associate for £15 million, of which £12 million had been repaid post year end which should be added to that cash balance.

We think that there are two scenarios which could play out from here. Firstly, trading opportunities in the German commodity business could become less plentiful, driven by lower and less volatile commodity prices. This would require less cash in that business and hopefully mean that excess cash could be returned to Hargreaves and passed through to shareholders. Or secondly, trading opportunities
remain ample for the associate, and this requires elevated levels of trading collateral. Either way, it looks like consensus is wrong since analysts have forecasted a mean reversion in earnings but no return of cash. Although the timing is uncertain, a cash return for Hargreaves’ shareholders must be inevitable and
given all trading is back-to-backed, relatively risk free too.

We remain positive on Hargreaves’ prospects, driven by numerous strategic catalysts to unlock value, including from the renewable asset portfolio which management expanded on at the capital markets day. There also remains plenty of opportunity for consensus to be wrong and with risk to the upside.

[red ninja] 13/10/2022 12:33

I think it is worth listening to the 28th July Investor Meets Company interview :-

[red ninja] 13/10/2022 12:18

I must admit I'm attracted to the value in HSP and I added a few yesterday at under 320p.

The brokers have marked down HRMS profits from trading by 50% in the second half of year ending May 2023, but they are expecting profits to stay at a higher level than before the last 2 years.

The company has also said if trading really goes down they will repatriate the cash currently held in inventory at HRMS.

I'm thinking what's not to like.

However, agree there are some things which will not be absolutely clear until economic events become clearer.

[smithie6] 13/10/2022 12:14

You have completely missed/omitted the main points of my recent posts, which are 100% correct.

you are completely deluding yourself if you think that the HSP share price has fallen because of general -ve mkt sentiment.

The share price is down because the mkt has seen that the mkt price for pig iron has halved (a big part of the HSP profit) & that land prices have dropped & might not now be sellable at all for X years.
If true then what is value of something that you cannot sell ?!!

(see my post about builders' production rate & stopping buying of more plots if they already have X years of plots in their land bank) (if a builders' production rate halves then his land bank will last for double the time, so he has no need buy more plots)

[daisylove] 13/10/2022 11:47

Looking at other stocks like HILS and KLR that are also solid businesses being trashed it's clear that the main issue is weak sentiment coz of interest rates, the war and now we're in winter probably the risk of covid lockdowns. HSP has fallen from 600 just a matter of months ago and keeps going down. There must be a point where I can average down - surely - no? Will it recover (only if I don't average down!)? Both questions are rhetorical.

[bagpuss67] 12/10/2022 21:21

Increasing gilt rates are good for DB scheme liabilities. There have been dramatic improvements in scheme funding over the last year in general

[smithie6] 12/10/2022 21:13

...deleted

It's all complicated...

(NAV is phps a bad or invalid valuation method in current situation or at least needs a lot of adjustments.
And the NAV is not obtainable by shareholders, unless the whole co. is sold.
And arguably no one would buy the land plots since buildings are seeing a slow down & have enough land plots. And in a slowdown the builders will drastically cut back on their production rate to meet g'teed demand, otherwise if they build lots of unsold houses they risk massive monthly interest costs, security costs and going bust. And with a lower production rate the hs builder land bank will stretch for more years, so they can (& will) just stop buying land plots if they don't have buyers. (The % interest rate being a key factor).

The HSP dirs will eat 10p/year of any cash HSP makes & the land devel. dept. is expensive to fund, is it 20p/year. 10p + 20p =30p.
When plot sales are high & German profits are high then these no one complains about these high costs. All changes imo when land plot sales slow & pig iron price halves. If land plot sales stop (or stop) then that dept books a loss due to staff costs (& any redundancy costs) & German profit falls & the costs of the land devel. dept & £3 million for the dirs. then eats in to a reduced profit from the German side, reducing that further.
(If there is a slow down in selling land plots due to a big slow down in the building sector then one assumes there would be layoffs in that section/division, with an impact on the group PAT).

What will be the future PAT averaged over say the next 5 years after these effects ?

HS2 work. I get the feeling it is low margin & has various risks, as mentioned/explained in the past by one poster, Mudshifter or something.

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If one looks at listed property companies that have floated in London to invest in cheaper parts of Europe, many have done badly (& gone bust); many investors have bought in after the float attracted by the discount to NAV. But year after year the NAV has reduced at many due to the fixed management costs (often crazy high as a % of income or NAV). Some examples, Blacksea, ECDC, Probus, Dolphin DCI,
...investing only because of a discount to a claimed NAV often doesn't work.