Broker snap: Westhouse lowers its target price on Hargreaves

26th Sep 2012 17:07

Analysts at Westhouse Securities have today lowered their price target on the shares of mining and logistics group Hargreaves Services following its results for the year to May 2012. These were in line with expectations, but overshadowed by the discovery of gas leaks at Malty and the consequent potential decision to close/mothball the site. Even so, they write that: "this decision, which should be cash neutral at worst, will achieve two things in our view. First, it will materially de-risk the investment case by removing deep-mining risk altogether, and second, it will allow greater investor focus on the strong E&C business and the low-risk surface mine at Tower."Nevertheless, the broker has lowered its target price to 660p (from 893p) to reflect the uncertainty until the mine is closed, but remains a buyer of the shares. Lastly, the analysts highlight how Management believes that closing the colliery may, in fact, be cash positive given the amount of kit it expects to sell. "It removes one of the major bear cases on the shares in our view, i.e. that Hargreaves is primarily a coal miner. Supply contracts to Drax and Monckton can be re-sourced, in some cases at lower cost," they add. AB