Hargreaves Services – 833p

28 February – interim results

The logistics group Hargreaves has announced its interim results for the six months to 30 November revealing a 19% increase in revenues to £385m (2011: £323m), whilst underlying pre-tax profits rose by almost 9% to £22.7m (2011: £20.8m).  Underlying diluted earnings per share rose by over 15% to 60.4p (2011: 52.5p) and the interim dividend was increased by 15% to 6.9p (2011: 6.0p).  The problems at the Maltby coal mine (now closed) and the fraud at the Belgian subsidiary meant that the statutory loss before tax for the period was £9.1m, but investors should look beyond this and focus on the underlying business.

The first three months of the second half have seen strong trading and full year results are expected to be in line with expectations.  This would give adjusted pre-tax profits of £53m for the year for earnings per share of around 130p – more than our original forecast a couple of weeks ago.  This puts the shares on a prospective p/e ratio for the current year of just 6.4x.  Despite the problems that the group has encountered this looks far too low to us.  Even a relatively modest multiple of 8.5x current year earnings would give a target price for the shares of 1105p – the shares are a BUY.

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