- Long-term infrastructure projects provide good visibility at Services arm
- German joint-venture returns to profit
- Land sale delayed but brownfield site regeneration operation has great potential given current government priorities
- 6% dividend yield supported by asset-rich balance sheet with low debt
“If ever a company perfectly tapped into the themes currently championed by the Labour government, it might just be Hargreaves Services, given its expertise in long-term infrastructure projects and the regeneration of brownfield land for commercial or residential property development,” says AJ Bell investment director Russ Mould. “The company’s interim results point to the power of the business model, too, with first-half sales, profits and dividends all up and forecasts reaffirmed for the full year to May 2025, despite a delay in a Scottish property project.
Source: LSEG Refinitiv data
“This helps to explain why the shares trade at 10-year highs and slightly above net asset value (NAV) per share, after a lengthy period of trading at a hefty discount. Growth in NAV has stalled a little, but higher interest rates will have had a role to play there, and lower borrowing costs and further increases in profitability could help NAV resume its growth trajectory.
Source: Company accounts
“Revenues for the year to May 2025 look set to exceed forecasts thanks to strong demand in services, where framework contracts underpin much of the activity, and also earthmoving. A delay in the completion of a £9.3 million residential land sale near Edinburgh means profits will only match consensus forecasts, but excellent visibility from the Services arm and a return to profit at a German joint venture in raw materials and recycling, HRMS, mean management feels confident enough to increase the interim dividend by nearly 3% to 18.5p a share.
“Over 60 framework contracts, including those on the Lower Thames Crossing projects and Suffolk’s Sizewell C nuclear power plant, provide good visibility of earnings and infrastructure spending remains a national priority.
“The timing of land sales can be unpredictable and revenues lumpy, but a steady improvement in the housing market could give a further boost to the land remediation operation, and release cash that can be recycled into new projects – or returned to shareholders, especially as the balance sheet carries relatively little debt, even adjusting for lease obligations. A deal with Just Group, which will provide an insurance policy in exchange for a lump-sum cash payment, means Hargreaves Services no longer has to contribute £1.8 million a year to a pair of defined benefit pension schemes.
“If Hargreaves Services repeats the interim dividend at the final stage, that would give a total distribution for the year to May 2025 of 37p a share. That equates to a dividend yield of 6%, backed by an asset-laden balance sheet. Such a sum means investors can wait patiently for Hargreaves Services to optimise returns from its multi-year infrastructure deals and land bank.”
