Conditions in the UK’s coal market are the worst Hargreaves Services’ (HSP:AIM) chief executive Gordon Banham has ever seen. According to the figures you can go back further than that. Coal usage in 2014 was down 20% in the UK, with little more coal burned than in the 1850s.
Prices are falling – down £3 a tonne since February to £38. Coal fuelled power stations are closing because of carbon taxes and two fires at plants last year. Department of Energy and Climate Change (DECC) figures indicate the UK could be almost coal free by 2022 at current market prices.
Its not all bad for Hargreaves, whose shares shed another 7% this morning to 323p on a pre-close update. Declines in coal usage aside, the black stuff still supplied 29.1% of the UK’s power generation last year, a market which Hargreaves supplies through import brokerage activities and two surface mines in Scotland.
Earnings are falling but remain positive – for now. Durham-based Hargreaves is expected to deliver 124.8p in adjusted earnings per share (EPS) for the year to 31 May 2015, according to house broker N+1 Singer.
EPS in 2016 is forecast to slide to 43p a share, says N+1’s analyst Jon Lienard.
Strong cash flow as a result of exiting capital intensive activities and offloading inventory should see the firm report £60.7 million in free cash flow, around 188p a share, when it reports on 11 August.
The year after a further £22.6 million, or 70p a share, is forecast, though Hargreaves admits visibility over its end-markets is poor.