Is Hargreaves Services Plc’s £4.5Mn Exposure In The British Steel Seems To Be Irrecoverable?

UK based diversified Hargreaves Services Plc (HSP) group is engaged in the delivery of projects and services to the infrastructure, energy and property sectors. It is involved in the sourcing, production, processing, handling and transportation of a wide variety of bulk materials. The company operates surface coal mines in Scotland, Wales and England and produces million tons of coal per annum.

Hargreaves is specialized in the provision of haulage services, waste transportation, mineral import, mining and processing, together with specialist earthworks and related activities. It serves logistics, heavy industry, mining and minerals and civil Engineering industries. The company also offers services such as transport, handling, and recycling of waste for the industrial and domestic sectors. Hargreaves is headquartered in Esh Winning, Durham, the UK.

Recently, the group reported a media commentary on the financial position of the British Steel and its exposure to it. The diversified group supplies material handling and other ancillary services to the British Steel for the last eight years.

The group stated that unless the future of the Steelmaker in not specified, the potential impact on the Hargreaves is tough to be fully recognized. Although, the group estimated that it has current net exposure to the tune of £4.5 mn, including trade debt and work-in-progress dues which they assume is partially or fully irrecoverable.

Hargreaves has employed approximately 170 people to support the operations of the British Steel, and they estimated that associated employment cost might result in further dent into the group’s profit to the tune of £3.0 mn. Potential asset write-down and leasing obligation could cost additional £1.5mn, resulting in a possible exceptional charge to the tune of £9.0 mn.

Despite these charges, a trading halt with the Steelmaker could dent £11mn of the group’s revenue in the coming financial year and could dent pre-tax profit by approximately £1.3 mn.

In the company filing made with the London Stock Exchange dated on May 22, 2019, the board of the Hargreaves stated that it would further update on the possible measure that would be taken to mitigate the group’s exposure.

Share Price Performance

 

At the time of writing (as on June 05, 2019 at 04:28 PM GMT), HSP shares were quoting at GBX 237.49 and added around 3.5 points or 1.49% against the previous closing price.

Daily Price Chart (as on June 05, 2019), before the market close.  (Source: Thomson Reuters)

In the past 52wks, HSP shares have registered a high of GBX 364 and a low of GBX 220. In the past one year, its shares have delivered a negative price return of around 34.8%, and on a year-to-date basis, the stock was down by around 16.8% respectively.

At the current trading level, the stock was trading considerably below its 200-days, 60-days and 30-days moving averages, which indicates a downtrend in the stock.

At the current trading level, the dividend yield of the company stood at 3.06 per cent and the outstanding market capitalization of the company stood at around £75.57 mn, which ranks it among the small-cap stocks listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, which allows smaller companies to float shares.

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