IDEA 6: HSP
A Quiet UK Compounder with Improving Margins
Hello, GARP & Go readers,
Here’s a UK listed industrial idea drawn from the category of diversified, contract-anchored service businesses with improving earnings momentum and shareholder return discipline.
Hargreaves Services plc (LON: HSP) is a diversified industrial group operating across environmental, infrastructure and property-related services. The company has delivered strong revenue and profit growth in recent periods, underpinned by an expanded services pipeline, land asset realisation and operational improvements.
At a market capitalisation of around £250 million, the shares offer an attractive dividend yield with visible earnings expansion.
Let’s take a closer look.
Company Overview
Company: Hargreaves Services plc
Ticker: LON: HSP
Stock price: ~£6.50–£7.30 per share (GBX)
Shares outstanding: ~33 million
Market cap: ~£250 million
Enterprise value: ~£255 million
Hargreaves Services is headquartered in the North East of England and operates across the UK, Germany and Hong Kong. The group provides industrial, environmental and infrastructure support services to major corporate and public sector clients.
The business has evolved from its historical coal-related roots into a modern services and land regeneration group with a strong focus on environmental, infrastructure and sustainability-driven markets.
How the Company Makes Money
Hargreaves operates through three main business segments:
Services
The largest division, delivering bulk logistics, materials handling, mechanical and electrical engineering, land restoration, waste logistics and earthworks. This work largely supports energy, environmental and infrastructure clients and is typically contract-based and recurring.
Hargreaves Land
A land and property development segment managing brownfield assets and realising value through regeneration and redevelopment projects.
Hargreaves Raw Materials Services (HRMS)
A joint venture in Germany focused on specialist raw materials trading and recycling, particularly steel-related materials.
Revenue and profits are driven primarily by contracting activity in the Services division, supplemented by long-term land development monetisation and contributions from HRMS. This creates a blend of recurring operating income and periodic asset realisation.
Financial Trend: Revenue, Profit, Margins and Cash Flow
Interim Results (Six Months to November 2025)
Hargreaves reported a strong first-half performance:
Revenue: £183.1 million (+46% YoY)
Profit before tax: ~£14.3 million (+170%)
EBITDA: £18.3 million (+23%)
Earnings per share: 33.4p vs 12.2p
Cash position: £37.3 million
Interim dividend: 19.5p (+5%)
Growth was driven mainly by higher activity in Services and contributions from land asset disposals. Importantly, profit growth materially outpaced revenue growth, indicating improving operating leverage.
Longer-Term Trend
For the year ended 31 May 2025, revenue was approximately £264 million, up around 25% year-on-year, with expanding EBITDA.
Over recent years, the group has:
Expanded its contract base
Improved operational efficiency
Strengthened its balance sheet
Increased shareholder distributions
Margins have benefited from scale, better contract mix and tighter cost control. While land profits remain uneven, the underlying Services business is becoming more predictable and profitable.
Overall Trend
The direction of travel is clearly positive. Revenue is growing strongly, profits are scaling, and cash generation has improved materially.
Unlike many industrial businesses that rely heavily on macro tailwinds, Hargreaves’ recent performance reflects internal execution, disciplined bidding, and portfolio optimisation. This suggests a more durable and repeatable earnings base.
If Services continues to grow and land assets are monetised sensibly, there is further scope for margin and cash flow expansion.
Why the Stock Is Interesting
1. Strong Growth Momentum
The company is delivering double-digit revenue growth with faster profit growth. This is visible in both interim and full-year numbers.
2. Improving Earnings Quality
A growing share of profits now comes from contracted services rather than one-off activities, improving visibility and reducing volatility.
3. Cash Generation and Shareholder Returns
The balance sheet is in net cash. Management has returned capital through a tender offer and rising dividends, while continuing to invest in growth.
4. Reasonable Valuation
At around £240–250 million market cap, HSP trades on a mid-teens earnings multiple with a dividend yield of roughly 5%. Given current growth rates and balance sheet strength, this looks fair to attractive.
5. Strategic Optionality
The land portfolio provides embedded optionality. Successful regeneration projects can unlock material upside that is not fully reflected in steady-state earnings.
Key Risks
Cyclicality
Parts of the business depend on infrastructure and industrial investment cycles. A downturn could slow growth.
Land Timing Risk
Property and land profits are lumpy and sensitive to market conditions.
Execution Risk
Large contracts require disciplined project management. Poor execution could damage margins.
Management Transition
Planned leadership changes introduce some uncertainty.
Diversification Complexity
Managing multiple divisions and geographies increases operational complexity.
Bottom Line
Hargreaves Services offers a diversified, cash-generative industrial services business with strong recent momentum. The core Services division is scaling well, margins are improving, and the balance sheet is robust. Land assets provide long-term optionality, while shareholders benefit from growing dividends and capital returns.
You are buying a growing industrial services group with:
Visible earnings momentum
A net cash balance sheet
Progressive shareholder returns
Embedded asset value
If management continues to execute and capital allocation remains disciplined, there is scope for further earnings growth and gradual multiple expansion from current levels.
LONG HSP
This material is for information and educational purposes only and does not constitute investment advice or a personal recommendation.