Share Name Share Symbol Market Type Share ISIN Share Description
Hargreaves Services Plc LSE:HSP London Ordinary Share GB00B0MTC970 ORD 10P
  Price Change % Change Share Price Shares Traded Last Trade
  -4.50 -1.02% 438.00 25,040 16:35:17
Bid Price Offer Price High Price Low Price Open Price
430.00 437.00 446.00 440.00 441.00
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Support Services 204.80 14.37 50.84 8.6 142
Last Trade Time Trade Type Trade Size Trade Price Currency
16:35:17 UT 1,034 438.00 GBX

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21/10/202110:07Hargreaves Services plc2,428

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Hargreaves Services Daily Update: Hargreaves Services Plc is listed in the Support Services sector of the London Stock Exchange with ticker HSP. The last closing price for Hargreaves Services was 442.50p.
Hargreaves Services Plc has a 4 week average price of 392p and a 12 week average price of 392p.
The 1 year high share price is 578p while the 1 year low share price is currently 200p.
There are currently 32,326,535 shares in issue and the average daily traded volume is 42,173 shares. The market capitalisation of Hargreaves Services Plc is £141,590,223.30.
peter oconnor: And there go's HS2 from Manchester to Leeds. Massive earthworks in Blackwells back yard now gone. Was the 50% dip in share price just before the cancellation insider knowledge
red ninja: Added a few more at £4, ok a lot higher price than my initial buys (average at £2.09) of HSP, but property holdings should underpin HSP and they are continuing to buy land sites. Earth works looking good with HS2. German holdings HRMS should make progress with coal pulverisation plant.
red ninja: Downing Strategic Micro Cap I.T. Quarterly News Update :- Http://www.downing.co.uk/assets/dsmletter HARGREAVES SERVICES has enjoyed a fantastically profitable period of trading since we last wrote, with its German JV, Hargreaves Raw Materials Services GmBH (HRMS) driving significant EPS upgrades throughout the year to date. The profitability here has been driven by very strong commodity prices, in particular zinc and pig iron. The HRMS business is an interesting collection of operations which are worth exploring in more detail. Hargreaves owns 49.9% of the voting equity in HRMS but takes 86% of the economic benefit through additional non‐voting shares. Ultimately, we think that an exit of HRMS is likely to be the ultimate outcome here, with Hargreaves announcing that it “plans to explore strategic options for HRMS with its professional advisors over the course ofthe next several months.” The core HRMS operation is the trading business which trades commodities such as pig iron, coal, coke and other carbon products for the steel and refractory industries. Given the (trading) nature of the business, profits can be highly variable and have ranged from €2‐10 million over recent years, with revenue dependent on throughput volume multiplied by a margin. In times of strong commodity prices, the business trades higher volumes and can earn better margins contributing to the current strength in this business. It does not take commodity price risk asit backs‐to‐;back transactions, but it does have to invest working capital to facilitate trading and in the last year, as commodity prices have been very strong, working capital has increased from €38.3 up to €64.6 million, consuming cash in the process when it makes sense to invest more into trading stock. Naturally, this ought to unwind when commodity markets soften. The Carbon Pulverisation Plant (CPP) is a €28 million investment by HRMS which grinds coal and other carbon products to produce coal dust. This is again used in the steel and refractory industries and is being used in Germany to replace brown lignite coal which produces around twice the carbon footprint of coal dust and has been the backbone of German industry and power generation for decades. The Green agenda in Germany currently is to phase out brown coal by 2038, although emissions regulations likely mean this must be quicker. While the facility is currently ramping up from current break‐even level of c100k tonnes, it has capacity to produce 400k tonnes which ought to generate €3‐4 million of profit. The market is still evolving here, but around 2 million tonnes of brown coal dust are sold in Germany so it seems reasonable to assume that the CPP can find a market for 300k tonnes to take it to capacity. The final operation is DK Recycling which HRMS bought in 2019 for €1 when it was generating €130 million of revenue and losing €2 million per annum. Management turned this around to profitability and it now contributes positively to the group. DK recycles waste product – mainly dust containing iron and zinc – from the steel manufacturing process. DK offers a neat environmental and financial solution since its process avoids the landfilling of this material and its gate fees are also lower than those of a landfill. Competitors do not have the recycling capability and are therefore more exposed to the current commodity price increases. Management’s aim of €4 million of profit from DK over the medium term seems reasonable to us. The question is then how to value HMRS. We think it is fair to take a reasonable multiple on the trading outcomes of DK Recycling and the CPP plant which in combination might be worth around £50‐60 million based on Hargreaves 86% interest. Recall also that there is significant asset backing in here to support this. The trading business is more volatile and requires a through the cycle view, but we think it could be worth another £10 million or so. Overall, there is considerable value in HRMS. Right now, Hargreaves’ shareholders realise this value through a £3.9 million dividend which is passed straight through to Hargreaves’ shareholders and is supplemented by cash generation from the group. Adding in the Services and Land value we still believe that the intrinsic value sits comfortably above the current share price and there is considerable scope to generate shareholder value here through numerous catalysts.
btgman: Looking forward to the results end of the month if Hsp deliver 50p eps and a 22p dividend and a decent outlook for 2021/2 I don't think a p/e of 12 would be unreasonable pointing towards a £6 share price AIMHO GLA BTG
smithie6: interesting & well done for reading accounts & trying to sort out the numbers your point that 86% of HMRS is HSP, good/fair point 'retained profit', not sure that I see that as a key value, since it can be held in 'intangibles' which, well, its not tangible ! Debt HSP was paying a high price for its bank debt, 2 million/year. a very -ve impact on the annual profit number. HMRS is in German so one assumes they can obtain loans at very cheap rates in Euros (with the ECB providing billions to industry at close to 0% to prop it up) & such a loan can be backed up by the assets of HMRS (incl. its new coal stocks & its pulverising facilities) & phps its EBITDA. removing the debt cost from the HSP accounts increases its annual profit. The lower interest cost will appear in the HMRS accounts but I'm sure that asset equity accounting is used in the HSP accounts for the treatment of the investment in HMRS (because !!, HSP owns less than 50.0% of the votes; interesting ) so the interest cost inside HMRS is effectively/almost not seen in the HSP accounts. Instead the HMRS accounts will state the shareholder nett assets (which is after the interest cost of course) & the HSP accounts will state 86% of that for the value of that asset. With various items of debt I'm not sure how HMRS manages to pay a divi. If I remember correctly a divi can only be paid if the shareholder assets are greater than the amount raised by issuing shares. Maybe only a tiny amount was raised by issuing shares & hence removing that problem/risk, recalling that the cash to fund HMRS was provided as a loan (also providing HSP with the advantage of owning the HMRS assets, while owning <50% of the votes, if there were problems).
muckshifter: OK Smithie6, I’ll attempt to explain my jaundiced view of the HRMS purchase transaction to you, but bear in mind that I’m not an accountant, just someone who reads annual reports carefully and does his best to understand them – so I may make mistakes. At the time that the coal pulveriser construction was contracted by HRMS, it was budgeted to cost 27.5 million Euros – we have no access to any HRMS accounts to see the final outcome but aiui the contract completion was a few months behind schedule, which as a lifetime contractor makes me expect that the budget may well have been busted, but I’ll ignore that in the absence of figures. This was financed by a 3m Euro loan from HSP, a German bank loan taken by HRMS of 15m Euros (86% HSP) and 9.5 m Euros from retained profits of HRMS (86% HSP). I had a look at that time to see if I could work out the retained profits HRMS held, to see if they would be comfortable after the 9.5m Euros, and I’ve updated the retained profit figure from then using AR numbers to May 20. My updated figure came to approx 20.25m Euros, without any additional funds from depreciation because I don’t think HRMS had almost any depreciable assets before the Coal pulveriser. Deducting the 9.5m Euro funding for the crusher contract leaves 10.75m Euros (86% HSP), say £9.35m in HRMS retained profit. Note that the £24m coal purchase by HRMS was announced in December but payment had not occurred by the interims late in January - the reason, imo, is that HRMS haven’t enough cash. So, what comes next? Perhaps more borrowing by HRMS in Germany to raise the funds, but that would be borrowing by HSP for 86%. That seems to me to mean that HSP are transferring ownership of £24m worth of coal 86% to themselves, paying themselves from funds which are 86% theirs, and taking ownership of 86% of additional German bank loans to the tune of at least 16.7M Euros – very “smoke and mirrors” imo. The alternative is that HSP “declare”; the sale but get paid over a prolongued period during which HRMS sell the coal. That would be more like my understanding of the relationship between the two parties to date, when, as I understand it, HSP declare their portion of HRMS net profit in the Annual Report in the profit and loss statement and then deduct it in the cashflow statement, ie. the cash stays in HRMS. Confusing this, isn’t it? And I wonder how the £3.86m needed for the 12p/share extra dividend passed through from HRMS to HSP shareholders will be financed.
muckshifter: Afternoon Smithie6. The only shares I ever owned in HSP were the approx £1k worth that I bought for the short term early last November, for one of my kids, and they were sold last week. After many years of watching HSP make what I felt were a never ending series of blunders, I’d begun to think that they might just be pulling themselves together, and felt that the short term news flow should be reasonably good. But, after the last few RNSs I wanted out as soon as my target was reached. For long enough I’ve been posting that I didn’t think Blindwells would be the bonanza many expected, but a steady reasonably profitable long term project, and the last few RNSs have vindicated that view, imo. HSP spending to November 20 on Blindwells preparatory work amounts to approximately £22m, with no yardstick to measure that against – ie. have they completed all the most expensive preparatory work within the intended budget, or not, and so far they have received just £4.2m in January from the Bellway completion – no wonder HSP seem to have slowed down work at Blindwells, with the next £2.1m due January 22. The RNS about the coal sale to HRMS was an incredible RNS in my opinion, and if there was such a thing, I’m sure it would win the London Stock Exchange “smoke and mirrors” Oscar of the year, so I was pleased to exit when I did. However, differing opinions are what makes the market, so I wish all posters here the best of luck and a continuation of the rising share price.
muckshifter: A few more points, Smithie6, As previously posted, I'm not at all sure that the HSP JV have a road to build as part of the "completion" conditions, but I don't trust HSP RNSs. The bit of the RNS you quote in 2216 talks of a new road which provides direct access to Jn 5 of the M18, which sounds like the road Balfours have just opened - ie. an access road directly to the future warehouse would not connect to a motorway junction, it would connect to the road which Balfours have recently opened. So it is far from clear, reading that RNS that the HSP JV has to build the connection, but far from clear and perhaps "economical with the truth" seems common in HSP RNSs, imo. If you want the real picture in terms of Blindwells, I suggest you go to East Lothian Council site where there are literally hundreds of Blindwells related planning documents which tell the story. For example, iirc, planning permission for the roads and drainage needed as a precursor, I believe, to the two completions was granted subject to just a few preconditions 19th May 2020, which didn't leave much time to fulfil the preconditions and then do the work before the predicted end of May "completion" did it. Some of the documents appear contradictory, such as the need to prove that the site is environmentally clean which occurs in the Hargreaves application and the two joint applications between HSP & Crudens or Bellway - joint applications being indicative that HSP still have responsibility for some aspects of the housing site application. The HSP one for the roads and drainage etc, appears to have got over that hurdle but the others don't, because, imho, the criteria for acceptable levels of contamination are more rigorous for housing areas than under roads. Try this and then poke about if you have hours and hours to spare: https://www.eastlothian.gov.uk/meetings/meeting/16609/planning_committee
muckshifter: In terms of your latest series of posts Smithie6, here, fwiw, is my understanding of the origin, situation, etc of the German associate company HRMS GmbH, taken from an incomprehensible (imo) set of Annual Reports that I’ve just re-skimmed through. To be fair, the “dog’s breakfast” of enterprises which HSP owns, would take some explaining, so the lack of clarity that I’m complaining about, is understandable. Firstly voting rights, ie. control of the actions of the company lie with the German management who have a 51% stake, but financial “ownershipR21;, which I believe HSP explain as “profits and assets” without mentioning liabilities – which I would assume follow the same principle, is 86% HSP. This, I would think, stems from the origins of HRMS. HSP originally, I believe, had set up a team in Germany trading coal and the like into German industry, especially coke produced by HSP’s cokeworks in Yorkshire. Presumably, that team did well, and presented HSP with a proposal to create partly management owned HRMS, with perhaps an unacceptable alternative. HSP then set up HRMS with an initial loan of £10m, iirc, and a bank guarantee for a £5m facility. HRMS was a nice successful business for some time, I believe, but the closure, or impending closure, of the UK cokeworks caused them to decide on building the Carbon Crushing Plant, on the basis that it would give them more leverage with their customers. There was a hint that something new was being considered in the 2017 report, then in the 2018 report it was reported as being built at Duisberg, where HRMS have their HQ, at a cost of 27.5m Euro funded by 15m borrowed from a German bank by HRMS, a loan of 3m Euro from HSP, and the remainder from profits retained in HMRS. It was to be completed by end of March 2019, but was in fact six months late (no mention of cost overruns). Within that 2018 report, one of the “key risks” identified by the auditor was that failure of HRMS would create a material risk to the Group. Elsewhere in that AR total financial liability of the group related to HRMS is stated to be £29 million and outstanding receivables from HRMS is given as £11.8m, so the success of the German enterprise is clearly critical for HSP. In terms of what the CCP does, it must serve the high quality coal and coke users, such as steel smelters, cement works, etc, with German “coal” fired power stations using the much lower calorific value ( but cheap and local) lignite. Presumably, the high quality carbon product users have had some sort of system for pulverising the coal / coke themselves for years, but HRMS believe, and have convinced HSP, that they have a viable business which can replace the existing system profitably. That would not surprise me, as businesses generally seem to be whittling down peripheral operations and outsourcing them as they approach obsolescence these days. Finally, the purchase for 1 Euro of an adjacent business DK Recycling in December 2019, was reported in AR 2020. This is a business that reclaims iron from furnace slag, and is currently (at the date of the 2020 AR - 28/7/20) the first customer of the CCP. Both businesses are said to be suffering covid related slowdowns. Again, this is said to be a unique and efficient reclamation process, which presumably is intended to replace provisions at smelters. Many years ago blast furnace slag was used as sub-base on a motorway building contract I worked on, but it was not good, because it was full of lumps of slag mixed with metal, which is what I assume this recycling company is dealing with, separating the metal out and selling it back to the smelter with sub base or cement additive as a bonus by product perhaps. It will be very interesting to see how successful these two ventures are, as they seem to me to be critical to the future of HSP and must be reliant on replacing existing suppliers, but I doubt if we will have a clear indication this year. Hope that helps your understanding of the situation!
cc2014: Hmm. If HSP share price is going up on a day when FTSE is down 170pts I'm minded to believe someone has a good idea what's in the results.
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