Interims prompt Hargreaves upgrade

22nd Feb 2011 16:49

A positive interim announcement from AIM-quoted coal and transport services supplier Hargreaves Services has sparked upgrades of next year's profit forecasts by brokers. Both house broker Brewin Dolphin and Panmure Gordon have held this year's profit forecast but increased their 2011-12 forecasts by around £4m - the former to £47.4m and the latter to £48m.Because Hargreaves' main operations are underpinned by contracted income the current year profit forecast of around £40m should be a comfortable target even though there was a £400,000 hit taken by the transport division for the bad weather in December and January. Revenue grew from £211.6m to £253.9m in the six months to November 2010 with all four divisions of the group contributing to the growth. The coal supply operations have driven the revenue growth because of the rise in coal prices. The main contributors to the growth in pre-tax profit from £14.7m to £16.1m were coal production and coal supply. The Maltby colliery has resolved its equipment problems and is running more efficiently. There are plans to change shift patterns to get more hours of production each week. The Monckton coke works is performing well even though its contract prices are well below the current coke prices. This provides scope for further profit improvement next year. The coal supply business has 60% of the UK market and is expanding in Europe. A joint venture with Russian coal supplier MIR Trade commences in the second half. Transport is underpinned by long-term contracts but the bulk transport market remains difficult. The industrial services division has been retendering for some existing contracts but has not won major new contracts in the period. Net debt was £99.6m at the end of November 2010. Cash tends to be generated in the second half so the year end figure should be lower than the May 2010 net debt figure of £88.2m. Brewin Dolphin forecasts year end net debt of £72m. There was a sharp rise in the debtors figure at the end of November but this appears to be due to a combination of timing and increased volumes. This has kept net debt relatively high but is not a major concern. Last year there were £150,000 of bad debts, which is equivalent to around 0.03% of turnover. The debt levels have put off some investors but chief executive Gordon Banham says that he is comfortable with the debt level and so is the company's bank. The interim dividend is increased from 4.4p a share to 5.1p a share providing an indication of the company's confidence.