Rembrandts in the Attic: Hargreaves Services

Hargreaves Services has underappreciated hidden assets: cash from the sale of its coal assets and the use of its land bank for residential use

I have often been surprised how slow the market is sometimes in recognising when a business transforms itself, especially in the small cap space. I believe my holding in UK listed small cap Hargreaves Services represents a deep value “Rembrandts in the Attic” play, a growing business backed by both attractive land assets and cash.

This article is for illustrative purposes and is not intended as investment advice.

Company Description

Hargreaves Services, used to be a coal miner and is now a diversified industrial services group and a brownfield land developer. Its strategic transformation has continued steadily over the past four years, moving away from UK coal mining and into environmental services and repurposing its land bank into residential homes. Importantly for the rating and the attraction of the shares to a wider ESG focused investor audience, Hargreaves has now over the past few weeks exited all material coal related business activities ahead of schedule. In my opinion the shares tick all the valuation boxes, and enjoy catalysts to material valuation uplift thanks to its cash and attractive land bank assets. As this transformation becomes fully understood by investors, the shares offer stunning upside potential.

Investment Case: Transformational change in a business with sizeable hidden assets

Sale of coal inventory – bank debt eliminated

The transformation of the business away from coal continued much faster than anticipated. In December, Hargreaves sold all of its speciality coal to its German Joint Venture, Hargreaves Raw Material Services GmbH (“HRMS”), for a cash consideration of c.£24m. This was not only an important strategic step, it moves the Group into a net cash position (ex. Leases) and transforms the balance sheet. Analysts had expected Hargreaves to sell down its remaining coal inventories over the two-year forecast period and this transaction accelerates the process. This faster than expected exit from coal related activities releases the capital tied up in the coal business. The impact on PBT is neutral but the balance sheet benefit is immediate, eliminating net bank debt by the May year end (a £15m reduction compared to previous forecasts). The Group’s remaining coal stocks (i.e. non-speciality coal for heavy industrial uses) are expected to be sold to third parties over the remainder of the current financial year, which will leave Hargreaves with no material direct revenue streams relating to coal production or trading.

New Core Business Environmental Services Winning Contracts

The pivot toward becoming an environmental services provider means Hargreaves has better growth prospects given the higher growth and longer term contract nature of the sector. Hargreaves has already been winning several new contracts in its industrial services division globally over the past year. In the UK, it has been appointed by Severn Trent Water to a three-year Mechanical Services framework contract for the provision of maintenance, repair, removal and installation of both clean and wastewater assets. There is an extension option for five more years. In Hong Kong, the business has been appointed by CLP Power to two key contracts (three-years duration with extension options for two more years) at Castle Peak and Black Point power stations. The work here encompasses the maintenance, repair and refurbishment of boilers, condensers and critical components.

The Land Bank is Attractive to Residential Developers

Hargreaves had already conditionally sold 14 acres of land for £10m to housebuilders Cruden Homes and Bellway pending infrastructure works. Post period end, Hargreaves Land completed its first sale at Blindwells (to Bellway), an important milestone. Good progress is also reported at the Unity JV at Hatfield with the exchange of conditional contracts with Harron Homes for 200 homes on a 23 acre section of the site (completion 2023). Prospects for further land deals there and at the former Hatfield Colliery site near Doncaster look bright, too.

More recently, they announced a further sale of land at Blindwells, its major 1,600 unit residential development site near Edinburgh. Following the completion of the first sale of land at Blindwells to Bellway in January, Hargreaves Land has now exchanged a conditional sale contract with Persimmon for a further 12.9 acre parcel. Completion is conditional on receipt of detailed planning permission and the completion of infrastructure works to service the site. The Persimmon phase has a capacity for 192 homes including 30 designated as affordable. The minimum sale value of this phase is £9.3m, with one third payable on completion and two further equal instalments to be paid 12 months and 24 months later as infrastructure serving the plots is constructed. Completion is expected in the second half of the financial year ending 31 May 2022.

Recent Trading Update: Resilient H1& Positive developments post period end

In their recent trading update in December, Hargreaves has reiterated their full year profit expectations and confirmed that the Covid-19 pandemic has had a limited impact on business activities. The group trades on just FY22 P/E 9.5x, with a dividend yield of 8.2% so is attractive to both growth and income investors.

As expected, revenue and underlying PBT both declined during H1, primarily due to the phasing of works on HS2 within Specialist Earthworks. Group revenue was £92.0m (H1’20: £124.7m), resulting in underlying PBT of £1.1m (H1’20: £2.4m). An interim dividend of 2.7p was declared and the statement reiterated the Board’s intention to pay a 12p additional dividend alongside this year’s final.

Cash generation was a highlight of the period, with net bank debt reducing by 69% to £8.0m,
compared with £25.4m in November 2019 and £13.5m in May 2020. The position has been
strengthened further post year-end by the sale of Hargreaves’ remaining speciality coal business. This is expected to result in a year end net cash position (before leasing debt).

Impact on forecasts

The cessation of coal trading reduces revenue forecasts by £25m and £30m in the years ending 31st May 2021 and 2022 respectively and by £20m in FY23. However, the impact on underlying PBT is forecast to be neutral as a lower interest charge and an increase in Hargreaves’ share of profits from the HRMS JV offset the lost contribution from direct coal trading (c.£1m in FY’21).

Key Risks

  • Hargreaves is a small cap business
  • Land values may be impacted by a weak UK economy
  • Contract wins are uncertain
  • Environmental business services focus is new


I believe Hargreaves represents a low-risk investment given its extremely low valuation, its land asset backing and its cash rich balance sheet. There is every prospect that the shares will be materially re-rated as the markets come to recognise the transformation the group has undergone. Its environmental services business focus undoubtedly has better and greener growth prospects relative to coal mining. To aid its growth, the company has managed to unlock capital from coal activities to reinvest into this new core business. The group trades on just FY22 P/E 11x, with a dividend yield 7.2% so is attractive to both growth and income investors. As the group’s transformation becomes fully understood by investors, the shares offer stunning upside potential.

Disclaimer: This information does not constitute any form of advice or recommendation by Pynk One Ltd. and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. When investing, your capital is at risk and you may recover less than the initial investment.
Past performance is not an indication of future results.


Thank you pb1, this is brilliant.
I looked at the board of directors: Gordon Banham, CEO was with company like, forever, and remained there when company lost 85% of it’s value on stock market between 2012 and 2016.
Nigel Halkes, previously managing partner with Ernst & Young was clearly brought in 2015 to help stabilise balance sheets. Another chartered accountant, John Samuel, joined the board in 2018. Also in 2018, Roger McDowell came on board: unlike others, his career was much more eclectic, and he probably was the one that had enough of experience in others sectors to get board to consider diversifying a bit more. The move to use its land banks for property development resulted in two directors with property development background: David Anderson (joined 2018) and Chris Jones (joined 2020).

The youngest board of director member is Nicholas Mills, and he is there to keep an eye on the company on behalf of largest shareholder, Harwood Capital LLP, run by his father Christopher Mills. Christopher Mills scooped 28% of Hargreaves Services shares in Aug 2020, when shares hit a rock bottom price of 226. (it is now 312).

Great little company to keep an eye on (especially if it already caught the eye of Christopher Mills).


Seems like an excellent opportunity while it’s still under the radar and even later.
I like that they exited coal ahead of schedule so they can focus more on the future and less on transformation process.


Today’s news: Hargreaves’ specialist earthworks business, Blackwell, has been appointed by the EKFB JV to carry out earthworks on part of the HS2 project. The award is the largest in Blackwell’s history and provides firm underpinning for existing specialist earthworks forecasts. This is the third notable piece of good news for Hargreaves since the half year-end, following the disposal of coal inventories in December and exchange of contracts on the third phase of land at Blindwells in February. The share price has begun to respond accordingly but remains some way below NAV (400p) on still an undemanding earnings metrics (12x FY22 P/E) with the attraction of a 6% dividend yield.


Hargreaves has released an unscheduled and very positive update today. The performance of the German JV has improved materially, prompting a 45% upgrade to FY21 EPS forecasts. Meanwhile, the Services and Land businesses in the UK are trading in line with expectations, whilst driving significant outperformance on cash. This has created a £26m positive swing versus previous FY21 cashflow forecasts, which will feed through to helping eliminate debt. Today’s update reinforces confidence in the progress being made across the Group.

When investing your capital is at risk.


Yet another incredibly positive trading update from the company:

A stronger than expected performance by the company’s German joint venture means that the profit for the year to May 2021 will be much better than expected. The German business has been materially boosted by strong commodity prices and ever rising demand from steelmakers which means this division of Hargreaves stands to make a materially larger profit contribution than expected four weeks ago.

Management is cautious about how long this strong trading will continue, though. This means that even though this year’s profit estimates have now been revised upwards 50% by analysts, analysts have left earnings forecasts unchanged for subsequent years, giving perhaps a too cautious picture of no further growth ahead.

Recently, we also heard from the company that the Unity property joint venture in Doncaster completed the sale of a 79-acre plot to a retailer for £25m. This deal was done one year earlier than expected. The plot is a part of a much bigger development site, which will yield more cash over the years. This also helps to underpin the net asset value of Hargreaves Services which was forecast at 395.4p a share before the most recent trading statement.

The shares have moved strongly in recent months but still trade on around 13 times prospective 2021-22 earnings, below NAV and yield 5.2%.

Your capital is at risk


Hargreaves just announced excellent results showing material profit growth and cash generation driven by the excellent performance of HRMS (profit increased from £1.6m to £13.6m), as well as increased activity at Hargreaves Land (£6.6m profit delivered versus a break even performance in FY20).

Underlying profit before tax was £21.2m, a full £16.3m higher than the prior year (£4.9m). Hargreaves ended the year with £16.5m of net cash and £28.3m of cash at bank. FY21 results confirm the transformational change at the company and the anticipated resulting profit growth.

With all direct coal related activities ceased, HRMS profits surged and net debt was eliminated. On the dividend front, the first 12p additional dividend has been proposed (total FY21 DPS 19.2p) and this is expected to recur for a further three years at least given the cash in the business. Hargreaves has now been wholly repositioned and now has genuine momentum in the newer environmental consultancy and land bank redevelopment business lines (as witnessed by several contract wins).

The share price has performed very well but given the material upgrades to date, the rating remains undemanding (FY22 P/E 11.7x, 4.1% yield).

Your capital is at risk

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