Every day most of us rely on the products that Hill & Smith makes - from the ubiquitous poles for street lights, to the crash barriers, hand rails and access covers that are so integral to our daily lives that they go unnoticed. Providing the world with such essential kit has its upside as a decent level of demand can be relied on. Well, almost - pressure on the public purse and on capital projects has weighed on Hill & Smith's performance in 2010 and 2011. However, things could be poised to change; meanwhile there is a decent dividend yield on offer for investors willing to bet on improving fortunes.
- Moving into new markets
- Collapse of French competitor
- Nice dividend yield
- Could be a bid target
- UK motorway-spending hiatus
- Balance sheet may need strengthening
The pressure on Hill & Smith has been most evident in a squeeze on profit margins at both its infrastructure and galvanizing operations (the group recently exited the construction market with the sale of its Ash & Lacy business). So, in 2011 underlying operating margins dropped from 12.3 per cent to 10.2 per cent. However, this situation is beginning to reverse for the galvanising business, which accounted for 29 per cent of last year’s revenues and 52 per cent of profits and operates in the US, France and the UK. The collapse into administration of a big French rival should provide a welcome boost for sales and margins, especially as the company has recently opened two extra powder-coating paint plants in France. The strengthening US economy should provide a boost, too. While the UK remains weak, a strong end to 2011 continued into the new year – when the group reported full-year results in mid-March, the division's volumes were running ahead of expectations.
| HILL & SMITH (HILS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 329p | MARKET VALUE: | £253m | |
| TOUCH: | 326-329p | 12-MONTH HIGH/LOW: | 397p | 232p |
| DIVIDEND YIELD: | 4.3% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 196p | NET DEBT: | 69% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 420 | 35.1 | 26.2 | 10.0 |
| 2009 | 390 | 39.7 | 36.3 | 11.5 |
| 2010 | 374 | 35.3 | 32.0 | 12.7 |
| 2011 | 406 | 25.4 | 20.9 | 13.2 |
| 2012* | 425 | 40.1 | 36.5 | 14.1 |
| % change | +5 | – | – | +7 |
Normal market size: 800 Matched Bargain Trading Beta: 0.7 * N+1 Brewin (profits & earnings not comparable with historic forecasts) | ||||
The infrastructure business looks like it could face a somewhat tougher year due to an expected hiatus in UK motorway work around this summer's Olympic Games. But management sees good prospects in motorways in 2013 based on projects in the pipeline. What's more, Hill & Smith has a healthy order backlog from its utility customers, and opportunities to increase sales of its road safety products in the US and Europe.
Many of Hill & Smith's oportunities are of its own making. It has been actively pushing into new markets, especially overseas. In 2011, 65 per cent of underlying profits were generated outside the UK and the aim is to get this figure to 75 per cent by the end of 2013. Hitting that target has been helped by recent acquisitions in the US and Scandinavia, which look canny because they take the group's products into new markets and boost its product range.
