We are surprised by Hargreaves Services’ (HSP:AIM) decision to sell its haulage business Imperial Tankers as this provided a welcome contribution to group profits at a time when the wider business is struggling with falling coal prices.

Although the £26.9 million disposal price is attractive, it is only a short-term win. The remaining coal mining and trading operations are clouded by numerous market uncertainties, so stay clear of the stock as we see much further downside to the share price at 690p.

HSP - Comparison Line Chart (Rebased to first)

The outlook for the coal price remains very poor. Hargreaves’ coking operations at Monckton require high levels of working capital and the £227 million cap is looking to see if it can secure enough contractual certainty to justify keeping that business going.

Hargreaves raised money in April 2013 to revitalise open pit coal mines in Scotland but the coal price has since fallen by 16% to £46 per tonne. It can rework mine plans to cope with this pricing but that would reduce output levels.

Investment bank Jefferies has slashed its earnings per share forecasts by 31% to 100p for the financial year to September 2015 on the poor near-term outlook.

Longer-term, Hargreaves hopes to boost its industrial services arm.

Issue Date: 05 Sep 2014