US Edition Hargreaves Services
916p -2
Questor says BUY
In the six months to November 30, pre-tax profits rose 9.6pc to £16.1m, on revenues 20pc higher at £253.9m. The interim dividend was raised by 15.9pc to 5.1p and it will be paid on March 25. The shares trade without the right to this payment from March 2.
The prospective yield is just 1.7pc, so there is plenty of scope for an increase in the future – particularly as the dividend cover is a more than comfortable 7.4 times.
The company has long contracts for the supply of coal, but a number of them will be expiring this year and next. Coal prices have been rising fast globally, so Hargreaves is likely to lock in these gains when these contracts are renegotiated.
Coal may be unfashionable, but not in Asia. Many countries in the east are building new coal-fired power stations to meet their soaring energy needs. The company has been asked for consultancy services from one company from the region, so this opens up a very interesting opportunity for the group.
The company has managed to successfully change working patterns and operations at its Maltby Colliery to get a 30pc increase in coal cutting time. These skills are also very interesting from a consultancy point of view.
News on approval of its potential expansion at the Tower Colliery site in Wales should be imminent. A planning application is with Rhondda Cynon Taf council in Wales for the restoration and regeneration of an area of land including the former Tower Colliery site and pit heap.
Because the application is not approved, this potential expansion is not yet included in forecasts, so a positive decision should boost analysts forecasts and a negative decision shouldn't hit the shares too hard.
The shares are up 69pc since their initial recommendation in February 2009 at 542½p, compared with a market up 54pc. They are now trading on a May 2011 earnings multiple of 8.8 times, falling to 7.8 in 2012, and yield 2.1pc.
The shares remain a buy.