Coal merchant Hargreaves Services (HSP:AIM) confirms it delivered 74% of its market capitalisation in cash flow in the last financial year – around 254p a share.

Well-flagged, the colossal 12 month, £84 million cash flow haul remains an impressive achievement. It consisted of an unwinding of working capital, asset disposals and a resilient operating performance in the worst coal market for 30 years, according to chief executive officer (CEO) Gordon Banham.

Shares in Durham-headquartered Hargreaves trade 8.4% higher at 347p.

HARGREAVES SERVICES - Comparison Line Chart (Rebased to first)9

As promised, Hargreaves paid out a final dividend of 20p a share, giving a full year payout of 30p. But analysts have poured cold water on prior expectations of another similar payment in the next financial year, which had been planned as part of an accelerated plan to return capital.

‘It was announced that the group’s current view on the dividend is for a payout ratio of 40%, which equates to 16.8p on our forecast,’ writes Jon Lienard, an analyst at house broker N+1 Singer.

‘This is a reduction from our previous forecast of 30p but still equates to a 5.5% yield and we also expect share buybacks to recommence.’

As well as considering buybacks, Banham hinted at potential acquisitions or other investments to ‘reposition the group away from coal’.

Earnings visibility for the year ahead is low, CEO Banham admits, citing risks to its mining operations in a low price environment and UK thermal coal volumes, as power plants continue to de-stock a large inventory build in recent years.

‘Assuming that coal burn returns to a more normal level in the winter we would expect to resume shipments after the end of the calendar year,’ Banham says.

Given that uncertainty, it’s probably unwise to put too much confidence in profit forecasts. Lienard estimates profit-before-tax at £17.1 million in the year to 31 May 2016 and £17.5 million the year after. Hargreaves current market value is £112 million.

Issue Date: 11 Aug 2015