Derek Pain: Admiration for an old-timer which has served me well

No Pain, No Gain

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The Independent Online

Familiarity, it is said, breeds contempt, but I have nothing but admiration for the longest-serving member of the no pain, no gain portfolio. Hargreaves Services, the coal to transport group, and the portfolio have been together for almost five years, and during that time I don't think I have ever thought about giving the shares the old heave-ho.

I suppose the fact that Hargreaves is the granddaddy of portfolio constituents after only five years, is a stark reflection of the tumultuous times the stock market – and, of course, the portfolio – has experienced since 2007. During its near 13-year existence, some shares, such as, have held their place for much longer periods before, for a variety of reasons, suffering the embarrassment of dismissal. Hargreaves, in the present portfolio's pecking order, is second only to Booker, the cash and carry chain, that has surged from 24.5p since its arrival three years ago, to, on occasions, nudging 80p.

Since their recruitment, Hargreaves shares have more than doubled. They were enlisted at 417p; at the time of writing they reside at 1,120p and have been even higher. Nick Spolier, an analyst at stockbroker Arbuthnot, has repeated his buy recommendation and 1,500p target price.

The group, largely the creation of chief executive Gordon Banham, arrived on AIM in 2006 at 243p a share, capitalising the company at £57.5m. It was founded in 1994 with about 20 coal lorries. Its first AIM full-year profit was some £5.5m. This year, with a valuation just topping £300m, the out-turn should approach £48m.

In a month's time the group is due to report interim figures. All the signs are they will again be highly satisfactory. In a recent trading statement there was no shortage of confidence.

The largest division, energy and commodities, has exceeded expectations and smaller operations have also done well. A shortfall at the Maltby coalmine in South Yorkshire, was more or less offset by fuel strength elsewhere. Maltby should make up some of the deficiency in the second half year.

Hargreaves, which remains supremely confident that despite the green agenda strong demand for coal will continue well into the future, is keen to extend its surface operations. It has received planning permission for a development in Wales that could increase group output by seven million tonnes over six years. It is estimated that the site could be in full production by May. Other surface coal sites are being sought.

Throughout its stock market life Hargreaves has been quite acquisitive. In the main it has swallowed unquoted operations, although it did mount an unsuccessful attempt to buy UK Coal, the major remnant of the once so powerful coal industry.

From my longest-serving recruit to a relative newcomer, Northern Petroleum, which joined my share collection last summer at 68p. It has obtained offshore exploration licences near the Isle of Wight (IoW). They are adjacent to the group's IoW onshore licences and are thought to cover the same oil basin that embraces the famous Wytch Farm oilfield.

Besides its British operations, Northern has a considerable presence in Holland and Italy. Other activities include a stake in what is regarded as a highly promising prospect off the South American coast. Although the Northern holding in the field is tiny – a mere 1.25 per cent – there has been enthusiastic talk that it could be worth around 50p a share.

The group is not short of a bob or two and, I suspect, quite capable of funding its share of any South American development without running to shareholders for a cash injection. The shares are around 84p, which seems absurdly low. Last year they topped 140p. The fall from grace stemmed from a downgrading of its Dutch production. Almost certainly the decline was overdone.

As Northern continues to develop its interests, its shares should recover past glories, perhaps even touch the 200p hit some years ago.

If they do not respond then I would not be surprised if a predator takes advantage of what appears to be the oddity of a serious stock market miscalculation.

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