Profit from coal trading at Hargreaves Services (HSP:AIM) looks set to be double analyst expectations after a recovery in pricing for the fossil fuel.
Better market conditions should see Hargreaves' coal unit deliver a profit £3m higher than management plans outlined in August, according to comments by chief executive Gordon Banham today.
Analysts previously expected the unit to deliver a £3m adjusted operating profit.
Improvement in coal markets is tempered by contract delays in Hargreaves' industrial services business. As a result, Banham says expectations for the full-year result remain unchanged.
STRONG TRADING
'Results for the Coal Distribution division include the group's share of profit from our associate operation in Germany which is trading very strongly as its markets recover,' says Banham today.
'The recent increase in coal price during the first half, together with more robust coal demand, is expected to also result in the UK operation exceeding forecasts. Profits for the division are currently expected to exceed management expectations by £3m for the full year.'
A producer, supplier and distributor of coal, Hargreaves' shares have declined 80% over the last five years as energy commodity prices fell and government policy forced UK coal-fired power stations to close down.
SHRINK TO GROW
Hargreaves is using proceeds from the wind-down of its coal operations to invest in and build a more broad-based industrial services and property business.
In a note published 9 August, Analysts at house broker N+1 Singer forecast adjusted earnings per share of 11.4p in the year to 31 May 2017 and 16.3p a year later.
Key risks for investors include money owed to Hargreaves by struggling customers which may not be repaid as well as any potential reversal in coal prices or more delays in its services unit.
Shares in Hargreaves Services trade 5% higher at 231p.
