Laura Foll, co-manager of IC Top 100 Fund Lowland Investment Company (LWI) and Henderson UK Equity Income & Growth Fund (GB0007493470), explains why they invest in Hill & Smith Holdings (HILS).
"The UK is embarking on several large infrastructure projects, including Crossrail and a road investment strategy that extends to 2021, with the possibility of the High Speed Two (HS2) rail link in future," says Ms Foll. "A company we own that's well positioned to benefit from this spending is Hill & Smith, which among other products makes crash barriers for motorways, variable message signs (which tell us whether we are speeding), rail platforms and fencing.
"In a period when many companies are struggling to significantly grow sales, Hill & Smith is well placed to grow sales and maintain what are already high operating margins. Ultimately these high operating margins will mean substantial cash generation that should mean higher returns to shareholders, on top of what is already a strong balance sheet. We are starting to see some evidence of this - the interim dividend was recently increased by 11 per cent.
"At the first-half results, we saw the infrastructure spending in the UK starting to have an effect - Hill & Smith's UK roads business grew sales at a double-digit rate. While there may be intermittent periods of lower growth as projects complete, the pipeline of projects looks promising: in autumn this year construction is due to start on a further 11 'smart' motorways [that use real-time communication to ease congestion], for which Hill & Smith is likely to win contracts to provide crash barriers and, later on in the projects, variable messaging signs.
"As the desire for smart motorways increases, Hill & Smith has a strong market share that leaves it excellently placed to benefit."
