Hargreaves Services Share Discussion Threads

[bigbertie] 27/9/2012 11:41

Hosede - good trade, I bought at 555 and will probably sell soon. Sometimes these falling knives bounce at the right moment! Musn't try it too often though.

[hosede] 26/9/2012 14:29

Couldn't resist the quick 85p profit, but will keep watching and if these fall again with the general market look to buy back in

[davebowler] 26/9/2012 09:57

Westhouse;
HARGREAVES SERVICES
Buy


HSP.L / 551.0p / £150.2m / TP: 660p from 893p


Event: Results issue




Likely % change in earnings forecasts: No Change





Hargreaves' results for the year to May 2012 were in line with expectations, but overshadowed by the discovery of gas leaks at Malty and the consequent potential decision to close/mothball the site. This decision, which should be cash neutral at worst, will achieve two things in our view. First, it will materially de-risk the investment case by removing deep-mining risk altogether, and second, it will allow greater investor focus on the strong E&C business and the low-risk surface mine at Tower. We lower our target price to reflect the uncertainty until the mine is closed, but remain buyers of the shares.

No change to our FY2013 or FY2014 profit forecasts
We make no material overall changes to our profit forecasts for the current year or FY2014, and increase our net debt assumption only marginally. Given the heavy share price fall, the shares now trade on a modest 2.7x EV/EBITDA (May 2014).

Closing Maltby: Cash neutral, lowers risk, no client impact
Management believes that closing the colliery may, in fact, will be cash positive given the amount of kit it expects to sell. It removes one of the major bear cases on the shares in our view i.e., that Hargreaves is primarily a coal miner. Supply contracts to Drax and Monckton can be re-sourced, in some cases at lower cost.

Financial impact
We expect that some £25m of cash costs will arise from the closure/mothballing of the mine, which will be covered by equipment sales. In addition, a £40m non-cash write down will have no effect on bank covenants that are based on (unchanged) EBITDA expectations.

Valuation and forecasts
We lower our target price to 660p (from 893p), using a sum-of-the-parts model that ascribes no value to production, while applying a hefty 25% discount to the market's rating on the E&C division. This target price puts the shares on a May 2014E EV/EBITDA of only 3.0x. Our P&L forecasts remain largely unchanged, but a £10m increase in our FY2013 net debt forecast to £80m includes the working capital absorption of working the T125 panel.

Buy recommendation maintained
We believe that the shares are a Buy and that the investment case will be materially de-risked post the closure of Maltby, which we expect to be formally announced at the end of October. We accept, however, that a re-rating may be difficult to achieve until that time and that management needs to demonstrate that the issue of Maltby is indeed, "ring fenced" by selling assets and delivering on expectations in the unrelated E&C division. However, we view the c.15% dividend hike positively (almost 7x covered, 3.2% yield) and believe that this is a strong indicator of their confidence in delivery. (Full note to follow in due course)

[sammu] 26/9/2012 09:00

Questor says BUY :

[simon gordon] 26/9/2012 06:41

FT:

September 25, 2012 11:25 pm

Coal mine closure threatens 500 jobs

One of the UK's last deep coal mines could close with the loss of 500 jobs within months, dealing a fresh blow to what remains of the UK's deep mining industry.

Hargreaves Services, which owns Maltby Colliery, the century-old South Yorkshire pit, said on Tuesday it would take a decision on the closure next month. Gas, oil and water leakages have delayed work on a new coalface, costing the company £12m to £16m it revealed in a statement to the Stock Exchange.

Daw Mill in Warwickshire, once Britain's most productive mine, has been by threatened with closure in 2014 by UK Coal, which operates it, unless workers agreed to changes in work patterns.

Hargreaves, which produces and imports coal and coke, bought Maltby in 2007.

Gordon Banham, chief executive, said he could not risk the group's future. "I am concerned about 500 people losing their jobs in the current climate. But at the group, I am responsible for 3,000 people.

"When you go to those areas where a mine has closed and look at the effect it is intergenerational. But I don't think the government or anybody else is going to step in."

With average salaries of £50,000, ex-miners are unlikely to find better paid jobs. Mr Banham added that although the company's profits had grown at double digit rates, its share price had halved since buying Maltby. "Shareholders have made it very clear they do not like owning a deep mine," he said.

-----

City AM - 26/9/12:

Analyst Views | What impact would closing the mine at Maltby have?.

NICK SPOLIAR WH IRELAND
Closing the mine would be a major change, arguably removing a major distraction and releasing the energy of the business in the direction of a fully service-based model, but at the price of an impairment charge and further downgrade. Setting aside Maltby, the outlook statement is strong.

JON LIENARD N+1 BREWIN EQUITY RESEARCH
Mothballing the mine at the end of October would be likely to have a positive cash impact with plant and equipment sales more than covering redundancy costs. Another record performance for Hargreaves, but it has been overshadowed by the problems at Maltby.

PETER ASHWORTH CHARLES STANLEY SECURITIES
The financial impact of closing the mine is estimated to be less than the losses from the projected face gap in production. The rest of the group continues to trade well, with industrial services securing a number of new contracts in the steel sector.

[jamielein] 25/9/2012 13:41

I think charting is more of a self-fulfilling prophecy.

If enough people follow them then they work. There's no real reason why moving averages or Fibonacci numbers or whatever should be useful.

[stegrego] 25/9/2012 13:05

If the chart can supposedly predict a rise, did it predict the fall?
Just curious.

[simon gordon] 25/9/2012 12:31

Looks probable it will climb the monthly Ichimoku as Maltby is resolved:

[wjccghcc] 25/9/2012 12:25

I reckon Maltby contributed about 7-8mm of this year's PBT looking at the notes. So you'd need to reduce EPS by 15% to account for the loss profit stream going forward. Gives an EPS of approx 100p and a PE of 5.5.

For a coal specialist which is, long-term, in a declining market, it's a hard one to value.

[simon gordon] 25/9/2012 12:20

Proactive Investors:

Shares in British coal firm Hargreaves Services (LON:HSP) fell 20 per cent today even though it revealed record profits for the twelve months.

Revenues were up 24.6 per cent at £688.3 million leading to a 17.3 per cent rise in pre tax profits to £43.1 million.

The negative share price response comes amid concerns over the Maltby mine, in south Yorkshire, where 'geological problems' threaten the operation.

Analysts say the problems and the potential cost of resulting delays make the future of the Maltby mine uncertain.

Westhouse Securities today said that it is expecting the mine to close which would result in a £16 million impairment. Analyst Michael Donnelly believes this would be less than the forecast losses associated with upcoming development work.

He says that equipment sales would cover the cost of redundancies and the selling of the loss making mine should not impact the £8 million earnings that he expects Hargreaves to make from the Mockton mine this year.

Donnelly also highlights that Hargreaves' management is still comfortable with its position in regards to coal prices.

"We believe that a mothballing of the Maltby mine will result in a material de-risking of the Hargreaves investment case, and will provide a more stable story for investors," Donnelly said in a note, in which Westhouse repeated a 'buy' recommendation for the shares.

[aishah] 25/9/2012 12:19

Can't see these making much headway until Maltby is resolved. imo.

[bigbertie] 25/9/2012 12:03

Yes could be a good investment. Great 2012 results, and the management seem to be well on top of the Maltby issue, IMHO a firm decision on Maltby future will come by end next financial year, so damage would all be in 2013 numbers. I bought a few recently and have just added a few more. Good luck all.

[droid] 25/9/2012 11:55

Been on my watch list for months and bought in today. Quality company with good divi prospects.

[hosede] 25/9/2012 11:07

This has fallen nearly 60% from the high - seems a bit overdone to me - even if Maltby is abandoned I doubt profits will fall by that amount. Bought a few at 545

[suetballs] 25/9/2012 07:33

Preliminary results marred by Maltby. Looks like it will be a tough day!
Suet

[bigbertie] 21/9/2012 09:56

Yearend results due 25th I think.

[trademap] 20/9/2012 20:55

I'm guessing that the next update is next week?

[cisk] 20/9/2012 17:19

Maybe someone has got wind of potential bad news coming through?

[davebowler] 20/9/2012 09:42

Westhouse forecasts:
Sales = £661m
OP = £54m
Net debt = £78m

Consensus forecasts:
Sales = £669m
OP = £54m
Net debt = £82m

COMMODITY PRICES: The coal spot price has fallen some 6% since mid-August, and the last update from the company was the reassuring July update.

FOCUS AREAS: (1) Maltby update, expect no change to 12-16 week face gap (2) Tower Colliery started producing earlier this year, weather update over tough summer (3) E&C, expect on-going resilience in volumes and margins.

[beeks of arabia] 09/8/2012 11:06

Certainly looks to have been well bid for the last 2 days.

[gingerplant] 08/8/2012 07:12

Northumberland County Council has resolved to grant planning permission for the Well Hill Surface Mine, near Morpeth, subject to certain conditions and agreements.

The Well Hill site contains 130,000 tonnes of high quality coal which is planned to be extracted over a 2 year period.

Better than nothing!

[beeks of arabia] 04/7/2012 07:28

Nice, thorough update.

[stevemarkus] 29/5/2012 10:19

Yes, I agree with Cisk. £12-16M off next year's targets puts profitability on a similar level to this years, which is about 110p/share from memory. Of course that assumes that they can mitigate the problems at Maltby and keep everything else going, which may not be valid. But yes, I think the fall is overdone and makes a decent company look cheap.

Cheers,
Steve.

[aleks_atanasov] 29/5/2012 08:18

HARGREAVES TAKES HIT

[cisk] 28/5/2012 12:08

I believe so. This is a solid, well-managed company who has just had bad luck in encountering these issues with the current mine face.

IMHO this is a 'black swan' event - which, whilst setting the company back in the short term, will make a minor difference in the long run.

Also I believe that positive developments at Tower and the other parts of the business will hopefully offset some of the delay caused by this.

I'm sure it will take some time for the share price to recover and will depend on further updates from the company. However it's worth remembering that this kind of risk goes with mining (especially deep underground mining) and health & safety are paramount.

You can bet that the management team will look to overcome this shortfall from other areas in the current financial year.