Hargreaves Services (HSP:209p), a diversified industrial services group and brownfield land developer is set to reap the major benefits of its strategic transformation over the past four years, culminating in the recent cessation of UK coal mining. Coal inventories will be wound down from £40m to £8m-£10m over the next two years, the bumper cash flow from which will pay down net debt of £28m and be recycled into lucrative land regeneration activities.
For instance, the recently announced disposal of 32 hectares of land at the former Hatfield Colliery site near Doncaster will realise £25m on completion next summer for Hargreaves and its joint venture partner. The purchaser is a national retailer that plans to build an 800,000 square feet (sq ft) distribution and training centre. The 618-acre site has planning consent for the construction of a further 1.2m sq ft of industrial, commercial and logistics space and 3,100 residential plots. It’s not the only valuable land being developed either.
Hargreaves has already sold 14 acres of land to housebuilders Cruden Homes and Bellway at its 390-acre site at Blindwells, East Lothian. The £10m sale proceeds would have been recognised in the financial year if the UK lockdown hadn’t prevented contingent infrastructure work being carried out. That was the only reason why Hargreaves' underlying pre-tax profit dipped from £6.4m to £4.9m in the 12 months to 31 May 2020 as its other operations have traded largely unscathed through the pandemic. The deals will complete this year when house broker N+1 Singer factors in £15m of land sales on a healthy 22 per cent operating margin to support its group pre-tax profit estimate of £7m. On this basis, expect earnings per share (EPS) of around 19p.