Home Money MIDAS SHARE TIPS UPDATE: Hargreaves builds sustainable profits

MIDAS SHARE TIPS UPDATE: Hargreaves builds sustainable profits

by Elijah
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Green drive: Hargreaves starts using gas-powered trucks



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Gordon Banham was 18 when his father, a coal miner, died. With a poor mother and two younger brothers to care for, Banham Jr. took over the family business, delivering coal to homes in Norfolk.

By 2001, Banham had spent almost two decades moving, selling and mining black material, making him ideally suited to join Hargreaves Services, then a through-and-through coal company.

Banham still runs the business, but it has transformed from a shade of black to a bright shade of green. The road has been rocky at times, but Hargreaves shares have risen 28 per cent to £5.14 since Midas tipped them two years ago and the prospects are promising.

Banham recently revealed a six-fold increase in the interim dividend to 18p and promised to deliver a total payout of 36p for the year to May, which would put the shares on a 7 per cent yield. The group is also expected to substantially increase shareholder returns over the next three years.

Hargreaves operates three divisions, each of which can boast its own environmental credentials. Hargreaves Land takes former mining sites and converts them into areas for housebuilding, light industry and renewable energy, from wind farms to battery storage.

Green drive: Hargreaves starts using gas-powered trucks

Green drive: Hargreaves starts using gas-powered trucks

Hargreaves Services moves earth for large infrastructure projects and has just ordered the UK’s first electric excavator, which will go into operation early next year.

The division also transports municipal waste to biomass sites and is beginning to use gas-powered trucks instead of diesel vehicles. The third arm of Hargreaves is a joint venture based in Germany that trades raw materials and recycles steel dust into pig iron.

This division fell on hard times in the first half of Hargreaves’ financial year, suffering from lower raw material prices and a glut of Russian pig iron. Europe has now imposed an embargo on Russian stocks and steel dust prices have increased, so a solid turnaround is expected. The German company has also built up strong financial reserves, so although results were poor, it transmitted twice as much cash to Hargreaves as in the past and is expected to continue in a similar vein.

The division is also likely to be sold in the coming years, which should raise at least £40 million, money that will be returned to shareholders as a special dividend or through a share buyback plan (which reduces the number of shares outstanding and tends to increase dividend payments).

Banham also intends to sell much of Hargreaves Land over time – the residential land to builders and the renewable acreage to pension funds seeking solid rental income from wind, solar and battery farms. As sales are completed, investors will receive more cash.

Therefore, in the coming years, Hargreaves will generate most of its profits from the services business, which has dozens of major clients and a strong order book. The group will also conserve several thousand acres of forest land, fertilized with wastewater from Scottish Water and Northumbrian Water. Trees are being planted that will become lumber as they mature.

Midas Verdict: Hargreaves Services has been good to shareholders over the past two years, but more profits are on the horizon. Banham is determined to generate significant cash returns for investors, through special and regular dividends, supported by organic growth and constant sales of complementary divisions. The strategy is supported by veteran investor Christopher Mills, Hargreaves’ largest shareholder, with 28 percent of the shares. For income-seeking investors, the shares should prove rewarding at £5.14.

Traded in: AIM Heart: HSP Contact: hsgplc.co.uk or 0191 373 4485

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