Hargreaves Services (HSP), which delivers services to the industrial and property sectors, updated on trading ahead of its AGM today, confirming that all its three divisions are trading in line with expectations.
It said that its Services business – which offers large-scale earthmoving services as well as mechanical and electrical contracting, and logistics – had seen a strong start to the current year, with its 60 term and framework contracts with blue-chip clients delivering reliable recurring revenues. It added 10 new agreements in the year to May 2023, providing visibility on over 70% of FY24’s revenue.
Notably, Hargreaves said that the cancellation of the northern section of HS2 – which had halted the shares’ strong progress this year – would have no effect on the division, which prudently hadn’t factored in any revenues for at least two years due to the continuing uncertainty around the project. It said that existing work on HS2 phase 1 – from London to Birmingham – was performing as scheduled.
The company’s brownfield land development business also continued to make progress, including a 20-acre sale of serviced residential land to Avant Homes for £18.5m set to complete in January 2024. It also remains focused on creating value from its renewable land assets, which currently has more than 2GW of wind and battery storage moving through the planning process.
Weak commodity prices meant subdued trading in its HRMS business, its German joint venture which offers specialist recycling of steel waste material, but the dip in revenues had been expected.
It ended the period the period with £16m of cash and £31m of lease debt alongside no bank debt and continues to make progress buying out its defined benefit pension scheme. Brokers expects sales relatively flat at £209.1m in FY24, delivering a small rise in pre-tax profits to £23.1m.
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Despite the high-profile news surrounding HS2, Hargreaves looks set to benefit from the continued investment in UK infrastructure needed to improve the nation’s productivity. Its services division is also well-placed to support the energy sector as the shift to renewable generation continues, a trend that also underpins further progress in its land division.
Its brownfield development approach is also helping it overcome the difficulties posed by ongoing housing market weakness, with 5,730 residential plots with a gross development value of £200m consented across 6 sites, and a further 2,862 plots worth £120m passing through local planning. That positions it well to contribute towards the UK’s ongoing shortage of housing.
Despite robust trading and attractive medium-term prospects – with delivery underpinned by a rock-solid balance sheet - the shares remain lowly rated on a PE ratio of just 6.4x FY24 earnings and offering a forecast dividend yield of 5.5%.