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Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest.
A second, consecutive trading update from Hargreaves Services that provides little incremental good news might not sound like much but there is no bad news, either. And this column is more than happy to take that, given its recent travails with Zytronic, Resolute Mining, S&U and others.
Moreover, this column adheres to its view that financial markets are get-rich-slow mechanisms, when they work at their best. And Durham-headquartered Hargreaves Services still looks more than capable of helping here, given the long-term contract revenues, asset backing and dividend yield it provides.
Hargreaves Services derives the majority of its revenues from its infrastructure arm, where it provides mechanical and electrical services to major water and electricity utilities, as well as earthmoving and raw materials handling, in the UK, South East Asia and South Africa.
The company also has a 9,000-acre bank of brownfield land, which it regenerates and sells to developers for a range of uses, including warehouses, renewable energy projects and residential development. Finally, it owns 49.9pc of the equity in HRMS, a German raw materials and recycling operation where Hargreaves has the right to the vast majority of the profits.
Around 65 framework contracts, including those on the Lower Thames Crossing projects and Suffolk’s Sizewell C nuclear power plant, provide good visibility of earnings, even if the timing of land sales can be unpredictable and revenues lumpy, while a steady improvement in the housing market could boost the land business, too.
The latest update suggests that Hargreaves Services will show an improved performance in the year to May 2025, as will HRMS, while Hargreaves Land will show a decrease relative to the record profit recorded in fiscal 2024. All of these trends support analysts’ forecasts of a modest increase in revenues and faster advances in both underlying pre-tax income and underlying earnings per share.
Those in turn, along with a balance sheet that carries very little by way of net debt, underpin analysts’ expectations of an unchanged dividend of 36p for the full year, enough for a dividend yield of 6.2pc. The 18p final distribution for fiscal 2024 has already been banked, to take our total return from the stock so far into the mid-teens in percentage terms.
That tidy yield means investors are being paid while they wait for Hargreaves Services to deliver on its long-term framework deal and its land portfolio. They should also get some downside protection from the lowly valuation afforded the stock. The fat yield is one facet of that, while another is the multiple of net asset, or book value, per share at which the shares trade, which is just one time.