Value Ideas Blog
Hargreaves Services Plc. Hidden Asset valuation
Today we would like to provide further insides into our hidden Asset valuation of Hargreaves Services plc, where a friend of us, Daniel Gilcher helped us.   According to the annual report of 2014 the book value of land assets are carried at cost: 8,418m GBP. The problem is, that we don’t have a lot available information on the different land patches across the country nor the status and information of the plan projects.     Her is what we know: Where the old mines are and that 300 acres (1% of overall land) is developed towards a residential area. A minimum of 1600 housing units will be erected. The cost for development remains unknown. Please see below the landbank of Hargreaves around Edinburgh.   land portfolio around Edinburgh And in the next picture the landbank around Westfield. Westfield 1 Westfield 2   And in the following picture you can see the landbank in Castlebridge.   Castelbridge 1 Castelbridge 2   Furthermore, we have obtained the official documents of the Blindwells housing area development project.     blindwells     Additionally, Hargreaves has two sides next to Ayr which are called Piperhill and Killoch which are both 1 hour away from Glasgow. But this land is not ready to use and is furthermore unlikely to be used in a housing context we used a low-value agricultural and wood land value for it. Please see the total landbank below (click to enlarge).     Landbank     The valuation of the prospective wind farms and the underlying land is more complex, but here we went for the guideline of german wind projects of around 8,7m GBP, which are normally lower valued. For the rest of the land we simply used a 50/50 mixed use of the remaining land between low valued agricultural and wood land.     valuation 1   Please see below the per share basis.   Valuation2   In the respective valuation we only discounted the residential land value at 10% over 10 years. If our conservative estimation is correct, the company is sitting on a hidden asset value which is around 40% above the current share price.     Edit: In the new annual report they speak about 55 MW of wind projects, up from 43,5 MW last year. This would increase the value of the wind projects from 8,7 million GBP to 11 million GBP. This additional 2,7 million GBP in hidden assets increase the hidden value per share by 10,7 GBp. Furthermore, Hargreaves has stated, that they have 3 further areas wich are currently undergoing a feasibility analysis and have the potential for three big projects.     But another fact from the current report was even more interesting Hargreaves Services stated, that they have sold a piece of land from their Poinel site near Lanarkshire. We have done some further research to find this land and surprisingly a broker is offering a plot on old Hargreaves Land. You can find the land here and here. We assume, that Hargreaves has sold it for 2/3 of the now offered value which would leave us with 40.000 GBP per acre, which is much more than our assumed 4.000. After we have found the sides and we also researched the actual size. We found out, that the land bank should be around 1290 acres. Furthermore, we used 32.020.684 shares outstanding.     Please see the new valuation below: value 7 value 8   This would leave us with a hidden value of around 4,17 GBP per Hargreaves Services Plc share. Disclosure: no position

10 Comments

  • Nice post, thanks for breaking it out in more detail. A few follow-up questions:

    – How did you find the specific plots that Hargreaves owns in its landbank?
    – Where did you find the disclosure on HSP selling the plot at Poinel? I don’t see it in the 1H’15 interim and the 2015 report hasn’t been published?
    – Finally, with so much extra value vs. the current share price, curious why haven’t you invested?

    • Hey anon,
      1. finding treasure is our job, we use google, ministry fillings and other public sources
      2. “Property and Renewables: The Group continues to step up its efforts to drive as much value as possible from its significant property and renewable portfolio. The year ended 31 May 2015 saw some progress in this regard with the contribution of £0.8m of operating profit following a number of property disposals including a section of land at the Poniel site in Lanarkshire.”
      3. We have a social/green agenda, in which we stated, that we don’t invest into coal companies. Therefore, we don’t invest into Hargreaves as it does not fit our criteria. Nevertheless, it has a high potential in terms of upside.

  • Thanks a lot for your analysis

    Most of the FV is coming from Agriland and woodland but your don’t document where these areas come from and whether they can really be transformed in Agriland / woodland.
    Moreover, if I understand well your first tab, 8250 acres from broken cross (28% of total) are for wind farm. Aren’t they double counted as Agriland ?

    • Hey Vinc,

      thanks for your comment. We researched in different sources like mining reports and found the different sides, but we cannot locate all of them.
      We only valued the project value and not the land, this are totally different things.

  • Hi Nils,
    Thanks for the in-depth analysis. Does your hidden asset valuation take into consideration that the Scottish Mines Restoration Trust has a carried interest in the Blindwells asset (see end of Strategy section in the latest Preliminary Results)? Also, are there similar arrangements or obligations for the other sites? I was also wondering, whether there are hidden liabilities like mine restoration / renaturalisation, etc?

    • Hey Matthias,

      we tried to stick as closely as possible to reported figures and carried interest and accordingly account for that. According to our information, which discussed with the management, Hargreaves has no obligation to pay for hidden renaturation cost such as quicksilver. According to a fellow investor which meet the management a couple of weeks ago, the renaturation of the assets will be tendered by the british government. Hargreaves expects that these tenders will amount to 200 Million Euro from which they will get 50%. This would mean that hargreaves could achieve 100 million in revenues from renaturation in the next couple of years.
      Thanks for your question
      Nils

  • Any updates or new info on the land valuation?

    Also, can you explain the last comment on renaturation in more detail and how it relates to Hargreaves? What is the gov’t program where this is coming from? How is this revenue applied to Hargreaves and how is the total amount determined? What costs/expectations are there for if they receive this payment?

  • HSP interim results: (http://ir1.euroinvestor.com/asp/ir/Hargreaves/news.aspx) give some more info on the potential for property development…..15,500 acres, 10,050 “low grade”, Industrial is 1,170, Housing 530 acres, Agri is 2340, and Forestry is 990 acres. How does that compare with your initial guesswork?
    very curious to hear from you! Danke sehr!

  • Following up again, any updates given the new breakdown of land uses in the recent interim report? Seems like residential property with planning permission goes for a minimum of 500k pounds / acre, but not sure how to estimate the development costs and therefore HSP’s net profit / acre…

    • Hey AVI,
      we have never (will never) invest/ed in Hargreaves, thus it is not of a high importance to me. Nevertheless, I will provide some updates on the valuation in the future. My only really limited resource is time and I always try to allocate it into the ideas with the best potential 😉

      Cheers,
      Nils

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