Hargrove soars on change in divi policy
30 Jul 2010
Despite advising the market back in April that the outlook for 2010 was very bright Friday's trading update from digital marketing and corporate communications specialist Hargrove seemed to catch the market on the hop.
The shares rose in value by one-tenth after the company said it expects to report gross income in the first half of 2010 of around £14.1m, up from £13.2m, despite adverse currency movements putting a £0.2m dent in the kitty.
The group expects to report a pre-exceptional operating profit of about £1.72m, up from £1.45m in the first half of 2009.
Net debt at the interim stage stood at £5.9m, down from £6.5m at the end of 2009.
Now that the company has got most of the earn-out clauses from previous acquisitions out of the way it is in a position to despite paying more generous dividends.
Broker Peel Hunt has suggested that the dividend, which was 0.5p in 2009, could rise to 2.5p in 2001, heading to 4.5p-5p in 2012. "The company has indicated a revision to dividend policy, indicating that a medium-term cover of 2x is targeted (current cover is 25x)," Peel Hunt analyst Malcolm Morgan revealed.
The broker has a "buy" rating on the shares and believes "the potential for a 10-fold increase in dividend in the next three years should progressively be reflected in the share price."
"5p of dividend valued on a 6% yield would justify our current target price" of 85p, Morgan asserted.
Hargrave's chief executive, Rod Hyde, sounded more cautious in comparison to Peel Hunt. ""The impact of UK public spending cuts is now being felt in the general marketplace and this mismatch of demand compared to the private sector makes it difficult to make accurate short term financial predictions. However, we are increasingly confident of seeing healthy growth," Hyde said.
