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MIDAS SHARE TIPS: Hargreaves Services turns in a 5% yield


The UK once led the world in coal production, mining more than 200million tons a year in the early 20th Century. Production still exceeded 100million tons in Margaret Thatcher’s era and, even 20 years ago, the industry, while much diminished, remained a potent force in pockets of the country. 

That was when Gordon Banham took over Hargreaves Services, which mined, processed and transported coal across the UK. Banham was a career coal man, business was good and the company was floated on the junior AIM market in 2006. By 2012, the shares had almost tripled to more than £12. 

Today, the price is just £4.00. Environmental concerns have made coal progressively less popular and Banham was forced to reinvent the business, selling off the final remnants of his coal stock in December 2020. 

Change of direction: Hargreaves went from mining to developing brownfield sites with housebuilders

Change of direction: Hargreaves went from mining to developing brownfield sites with housebuilders

Looking ahead, however, prospects are bright and the stock should rise. Hargreaves now has three divisions – land regeneration, trading and recycling, and industrial services. All three are performing well and growth is expected to accelerate over the next five to ten years. 

Reassuringly too, Christopher Mills, a veteran investor with a history of picking winners, owns 28.5 per cent of the shares, while Banham owns a further 8.2 per cent, so is clearly incentivised to deliver returns. 

As a former mining business, Hargreaves Services owned plenty of land – 17,000 acres a decade ago, equivalent to the size of the city of Hull. Some of that was sold off to generate cash but the group still has 11,000 acres to play with and Banham has been putting it to good use. 

Decades of mining and processing took their toll but the land has been cleaned up and converted for homes and businesses. 

Blindwells is the largest development in the group, a new town just south of Edinburgh, where 8,000 houses will be built over the next 20 years, as well as schools, surgeries and shops. A joint venture with housebuilder Taylor Wimpey, the project will provide Hargreaves with years of annual income, as land is progressively developed and homes are sold. 

A smaller project outside Doncaster is transforming a deep coal mine site into more than 3,000 homes. Meanwhile, in Fife, what was once the largest open coal mine in the UK is set to become an industrial park, powered by a renewable energy plant that will convert waste into electricity.

Several more projects are under way, from wind farms in Scotland to a retail park in Bridlington, East Yorkshire. Taken together, these do not just provide steady recurring income for Hargreaves, they also regenerate swathes of brownfield land, creating homes and jobs in the process. 

Hargreaves’ trading and recycling arm has environmental credentials too. Based near Dusseldorf and co-owned with a German partner, the business acquires dust from steel plants across Europe and converts it into more than 300,000 tons a year of pig iron and zinc concentrate. In the past this dust would have gone into landfill. Now it is sold to big firms for use in construction and manufacturing. 

Commodity prices have soared in recent months so the business is raking in profit and likely to expand materially over the next few years. Aligned to this business, the trading division buys and sells commodities and delivers steady income year in, year out.

Hargreaves’ third arm builds on the group’s heritage to deliver a range of industrial services, from moving earth for the HS2 rail project to maintaining equipment for Drax, the power generation group. 

There is also a long-term contract with Tungsten West, the recently floated tin and tungsten mining group, based near Plymouth. 

Production is expected to start next year and could generate up to £2.5million in annual revenue thereafter. 

Interim results on Wednesday should reassure investors that Hargreaves is on track and brokers forecast turnover of £166million and profit of £12.5million for the year to May 31, 2022, rising substantially next year. 

A 20p dividend has been pencilled in for 2022, putting the stock on a yield of 5 per cent, with payments expected to increase steadily over time.

Midas verdict: Recent years have undoubtedly been harsh for Hargreaves Services but the business has now been transformed, using skills and assets from the past to create a robust and resilient business for the future. At £4.00, the shares are a buy. 

Traded on: AIM Ticker: HSP Contact: hsgplc.co.uk or 0191 373 4485 

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