UK Infrastructure And Environmental Projects Will Unlock Lasting Value

Key Takeaways

• Expansion into UK infrastructure and environmental services reduces business risk, supporting stable recurring earnings and stronger revenue growth.
  
• Strategic land disposals and a debt-free balance sheet enable greater flexibility for reinvestment or enhanced shareholder returns.
  
• Heavy reliance on asset sales, exposure to market cycles, legacy coal risks, and dependency on government projects all threaten stable cash flow and future earnings consistency.

Catalysts

Provides environmental and industrial services in the United Kingdom, Europe, Hong Kong, and internationally.

• The increased volume and value of long-term UK infrastructure projects-such as HS2, Lower Thames Crossing, Heathrow expansion, and major water/environmental works-positions Hargreaves Services to benefit from accelerated public and private sector investment, supporting sustained revenue growth and stronger order backlogs.
  
• Escalating demand for environmental remediation and compliance-driven projects (e.g., brownfield regeneration and stricter waste management for utilities and energy clients) is expected to expand high-margin service lines, driving improvements to both earnings and net margins as regulations tighten.
  
• The planned realisation of the land bank (notably Blindwells and renewable assets, valued at cost but independently appraised at a significant premium) represents a catalyst for large non-operating cash inflows, which could materially boost overall cash generation, balance sheet strength, and future dividend capacity.
  
• Repositioning away from legacy coal and towards diversified, recurring service contracts in infrastructure, renewables, and environmental management reduces business risk and volatility, thereby improving earnings consistency and enhancing the quality of future profits.
  
• The company's debt-free balance sheet and stable recurring income from the German JV (HRMS), coupled with inflows from land disposals, enables flexibility for selective reinvestment or shareholder returns-supporting a structurally higher base level of earnings and dividend potential over the next several years.

Hargreaves Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hargreaves Services's revenue will grow by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.6% today to 6.3% in 3 years time.
• Analysts expect earnings to reach £17.7 million (and earnings per share of £0.54) by about August 2028, up from £14.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, up from 16.8x today. This future PE is greater than the current PE for the GB Oil and Gas industry at 11.6x.
• Analysts expect the number of shares outstanding to grow by 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.98%, as per the Simply Wall St company report.

Hargreaves Services Future Earnings Per Share Growth

Risks

• The Land business relies heavily on the successful sale of land assets at or above current book and revalued prices; delays or downturns in the property market could significantly impact the timing and value realization of these sales, resulting in potential cash flow shortfalls and lower net margins.
  
• The HRMS joint venture in Germany generates recurring profit, but its trading business is subject to commodity price volatility and will eventually wind down as the trading team retires, creating future unpredictability for revenue streams and the risk of book value impairments.
  
• While the Services division reports growth from major infrastructure contracts, the business remains highly dependent on UK government-driven projects (e.g., HS2, Lower Thames Crossing, Heathrow, Sizewell C); economic cycles, political changes, or project delays/cancellations could materially reduce future revenue and profitability.
  
• The company still holds legacy assets and investments linked to coal, including the coal pulverisation plant, which faces long-term structural headwinds from decarbonisation policies and stricter ESG regulations; this creates risk of asset impairments or increased costs, negatively impacting net margins and return on equity.
  
• Increasing capital requirements for reinvestment in property developments (such as ongoing costs at Blindwells prior to sale completion), alongside competition from more technologically advanced or ESG-aligned firms in core markets, could pressure operating cash flow and threaten future earnings consistency if growth projects underperform or market demand softens.

Valuation

• The analysts have a consensus price target of £8.92 for Hargreaves Services based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £280.1 million, earnings will come to £17.7 million, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 7.0%.
• Given the current share price of £7.5, the analyst price target of £8.92 is 15.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.