Hargreaves: Misunderstood Sum-of-the-Parts Bargain With Catalysts

Simon Caufield of SIM Limited presented his investment thesis on Hargreaves Services (UK: HSP) at Best Ideas 2024.

Thesis summary:

Hargreaves Services is a UK small-cap on the AIM exchange. It consists of three divisions: industrial services, land development, and commodities trading.

Price to book is 0.7, EV/EBIT ratio 4, PE ratio 5 and forward dividend yield ~9%. But it’s even cheaper than it looks as the services business are high quality — capital light with inflation-linked pricing — and the land assets are materially undervalued on the balance sheet.

Simon estimates intrinsic value at £10, compared to the recent price of £4.

Management is well-aligned, with the CEO owning 8% and chairman 2% of the stock. An activist investor owns 28% and has a board seat.

Management intends to sell the commodities division and selected assets within the Land division over the next two years, returning £6 per share via a stock buyback (provided the share price remains below intrinsic value). That will leave the Services division and a slimmed-down Land division worth £4.

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About the instructor:

Simon Caufield is Managing Director at SIM Limited, a UK-based investment firm. Simon founded the firm in 2007 after selling his stake in Nomis Solutions, a B2B enterprise software company he founded in 2002. His circle of competence is deep value, cyclicals and deceptively cheap compounders amongst the industrial and consumer discretionary sectors.

Previously, Simon was a management consultant for more than a decade, including at Mercer Management Consulting. Simon has an MA in Engineering from Cambridge University and an MBA from London Business School.