- Annual pre-tax profit rises from £1.3mn to £5.8mn on revenue up 5 per cent to £86.6mn
- EPS and dividend per share rise fivefold to 39.1p and 15.5p
- Net cash up from £9.4mn to £10.9mn (90p a share)
- Analysts expect 38 per cent profit growth in 2023
Barnsley-based Billington (BILN:380p), a leading structural steel and construction specialist, raised guidance once again ahead of the release of its annual results, so the eye-catching growth was not wholly unexpected. However, it was still impressive.
Billington Structures, one of the UK’s leading structural steelwork contractors with a heritage dating back over 75 years, continues to operate near full capacity, buoyed by large orders at attractive margins in robust market segments (data centres, renewable energy projects, large industrial warehousing, film studios and stadiums). Projects completed last year include Shepperton Film Studios in London, Sandwell Aquatics Centre in Birmingham, and Wakefield Trinity Rugby Stadium.
Efficiency gains and smart buying activity is helping drive improved margin, too. For instance, management used the group’s strong balance sheet to stockpile steel at attractive prices to take advantage of pricing opportunities. The business is also benefiting from additional skilled labour recruited from overseas, which has provided the additional capacity to deliver on a strong order book, supporting another step change in profit this year.
Robust earnings growth and improving free cash flow
Following multiple upgrades in the past six months, analysts at house broker FinnCap expect group pre-tax profit to surge 38 per cent to £8mn on a third higher revenue of £115mn in 2022. On this basis, expect earnings per share (EPS) to increase by more than 25 per cent to 50.6p and the dividend per share to be hiked 29 per cent to 20p. This implies the shares are rated on a prospective price/earnings (PE) ratio of 7.6 and offer a forward dividend yield of 5.3 per cent.
The progressive payout policy is well underpinned by the group’s improving cash flow performance. In 2022, Billington delivered free cash flow (FCF) of £1.7mn, reversing an outflow of £4.3mn in 2021, despite the strategic working capital build in inventory. For the current year, FinnCap expects FCF to rise fivefold to £6.1mn (50.4p a share) with the benefit of an unwinding of the working capital build and 28 per cent higher cash profit of £10.2mn. Analysts pencil in closing net cash of £15.1mn, up from £10.9mn in 2022, a sum equating to a third of Billington’s market capitalisation of £46mn.
Takeover target
There are not many companies that offer shareholders an FCF yield of 13.3 per cent, trade on a cash-adjusted forward PE ratio of five and are rated on a modest 1.2 times price-to-book value estimates. That’s because most are taken over as predators circle to exploit the pricing anomaly.
Billington could well be headed in that direction unless the shares re-rate, a point I made at the start of the year when I selected the company as one of my four 2023 takeover targets (‘Four potential takeover targets’, 10 January 2023). The share price is up 27 per cent since that article was published and longer-term holders are enjoying a 77 per cent gain on the entry price in my 2022 Bargain Shares Portfolio. Offering a further 42 per cent share price upside to FinnCap's sensible target of 541p, which would value Billington on an enterprise valuation to 2023 cash profit multiple of five times after factoring in projected year-end net cash of £15.1mn, I continue to rate the shares a buy.
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