Bloomberg News

Hargreaves Services Confounds Buy Calls With Drop: London Mover

April 04, 2013

Hargreaves Services Plc (HSP) fell for an eighth day, the longest streak in three years, even as analysts say the U.K. supplier of materials and transport for energy companies is poised to gain as it settles difficulties at a coal mine and fraud in its Belgian unit.

Hargreaves Services, based in Durham, England, is mothballing its Maltby colliery because of geological risks to health and safety, and in February said the loss from Belgian malfeasance may be 17.7 million pounds ($26.7 million).

“As the issues at Maltby and in Belgium are worked through, that should be a positive catalyst,” Justin Jordan, an analyst at Jefferies LLC with a buy rating on the stock, said in an interview today. Some investors are banking gains, Jordan said, after the stock rose more than 40 percent in the three months before the current decline.

The shares fell as much as 0.8 percent to 823 pence and were down 0.2 percent at 12:49 p.m., heading for the lowest close in more than five weeks. That extended the eight-day decline to almost 7 percent.

Hargreaves said Feb. 28 that it expected a “strong” second half and predicted it would meet its full-year forecasts excluding Maltby and Belgium. Those difficulties should be “put to bed” by the time the company announces results for the year ending in May, Jordan said.

Hargreaves is benefiting from increasing use of coal in U.K. power stations as a result of an expanding price differential with gas, the London-based analyst said. It’s also expanding rapidly in Europe.

25% Upside

Jordan predicts the shares will rise to 1,030 pence, implying an upside of about 25 percent. He is one of four analysts with a buy recommendation among those who share their research with Bloomberg. Two analysts advise holding the shares, while none say sell.

“Outperformance in the shares since December does not yet, in our view, reflect the potential of the ‘new’ Hargreaves,” Michael Donnelly, an analyst at Westhouse Securities, wrote on March 5 after the interim results. Earnings before interest and taxes gained 6 percent in the first half on an underlying basis, he noted.

Donnelly predicts the shares will rise to 984 pence.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

To contact the editor responsible for this story: Douglas Lytle at dlytle@bloomberg.net


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