Coal specialist Hargreaves Services (HSP:AIM) is on the comeback trail, judging by significant earnings upgrades this morning from stockbroker N+1 Singer.
The energy services business is now expected to make £7.5m pre-tax profit in 2017, compared to previous forecasts of £4.5m.
The broker says its earnings upgrades are driven primarily by outperformance in Hargreaves’ German operations.
‘The real story is the ongoing transformation of the group,’ comment analysts Jon Lienard and James Tetley in a new research report on the stock.
‘As described last year, medium term aspirations included 1) core operating profitability of £10m-£15m - this is now forecast to happen this year; 2) £60m of cash realisation from surplus assets - this is happening and management is increasingly confident that book value will be achieved; 3) £35m to £50m of incremental value from Property/Energy over five years.’
BIG NEWS NEXT MONTH?
The analysts believe Hargreaves could receive the long-awaited planning permission in March to transform an old coal mine in Scotland into a major property development including homes, a school, community facilities and commercial units.
Hargreaves bought the 390 acres Blindwells site in 2013 as part of a broader acquisition of asset from Scottish Coal which had gone into liquidation.
Last August Hargreaves said it had amassed an 18,500 acre portfolio of property which included a range of agricultural and development land. It has been working on this portfolio to clean up the land and try and extract significant value through a mix of property, industrial and energy developments.
Hargreaves presently trades at 268.44p per share. N+1 Singer estimates the net asset value of the business is much higher at 406p per share.
WHY ARE THE SHARES DOWN ON RESULTS?
Half year results to 30 November 2016 would suggest a significant backwards step for the business with 48.8% drop in underlying operating to £2.1m and net debt rising by 19.8% to £36.9m.
That explains why the share price falls 2.5% on the back of the results announcement.
The drop in earnings is largely driven by the reduced level of coal trading activity. It has suffered from steel and power plant closures and delays to major projects in Asia.
WHAT’S THE COMPANY’S VIEW?
Hargreaves remains upbeat despite these recent issues and negative financial performance.
Commenting on the interim results, Chairman David Morgan says: 'It is pleasing to see how much progress we have made towards the three strategic goals we set ourselves a year ago.
‘First, earnings from the continuing Distribution & Services operations are well set to deliver operating profit within the target range that we set.
‘Second, good progress is being made in creating and then delivering the targeted £35m-£50m uplift in value from our Property & Energy portfolio.
‘Lastly, it is very gratifying to see the progress that has been made in the realisation of cash from the legacy assets and the increasing confidence that this realisation will be achieved without the need for any net impairment of the book value.’
