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Hill & Smith heads Stateside

RESULT: Hill & Smith looks set to benefit from a big round of capital spending in the US
August 9, 2012

The better trading conditions that emerged in late 2011 continued into the first half of 2012 for infrastructure specialist Hill & Smith. Demand from the US in particular is growing strongly due to a round of capital spending by utilities companies, which prompts us to keep our buy rating.

IC TIP: Buy at 315p

A very impressive performance by the utilities division underpinned first-half results; revenues rose 42 per cent to £102m and profits more than doubled to £7.9m. Utilities benefited from a buoyant US market as the country's power grid undergoes a long overdue upgrade. Trading was more mixed at the UK-focused road division, which specialises in road lighting and steel motorway sections. When the benefit from acquisitions is stripped out, the division's profits fell from £4.4m to £2.7m due to higher project costs for new light-weight road gantries. In addition, management said an "Olympics effect" this year would lower activity for the roads division as projects are delayed to the fourth quarter. This, combined with uncertainty in Europe, meant management sounded a cautious note about the prospects for the full year.

Broker Investec Securities nudged its forecasts for pre-tax profits higher by 1.8 per cent to £39.6m, with a lower tax charge boosting EPS by 5.4 per cent to 37.1p.

HILL & SMITH (HILS)

ORD PRICE:315pMARKET VALUE:£243m
TOUCH:315-320p12-MONTH HIGH:345pLOW: 232p
DIVIDEND YIELD:4.3%PE RATIO:8
NET ASSET VALUE:205p*NET DEBT:56%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20111954.601.705.40
201222419.018.05.80
% change+15+313+959+7

Ex-div: 21 Nov

Payment: 7 Jan

*Includes intangible assets of £128m, or 166p a share