Investors came to these results aware that UK project delays and bad weather would weigh on Hill & Smith’s (HILS) first-half numbers. What they didn’t expect was that Brexit uncertainty, together with the unwelcome addition of raw material price volatility, would force the infrastructure engineer to backtrack on its bullish outlook statement issued in March.
Following a more difficult than predicted second and third quarter, management is now more cautious on meeting prior full-year forecasts, short of a marked turnaround. Chief Derek Muir is optimistic about UK road projects coming to fruition, but also pointed out that the current political environment could reasonably see some of the contracts that the engineer was banking on to meet its guidance delayed into the new year.
Volatile raw material prices add to this uncertainty. During the reported period, the cost of zinc, and to a lesser extent steel, fluctuated so much that management had difficulty passing on price increases to customers. That ongoing issue, coupled with bad UK weather and Brexit-inspired project delays, triggered a 9 per cent fall in underlying organic operating profit at the halfway point.
Investec downgraded its EPS forecasts for the 2018 and 2019 year-end by roughly 6.8 per cent to 72.8p and 76.9p, respectively (from 74p in 2017).
| HILL & SMITH (HILS) | ||||
| ORD PRICE: | 1,167p | MARKET VALUE: | £921m | |
| TOUCH: | 1,165-1,170p | 12-MONTH HIGH: | 1,538p | LOW: 1,130p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 352p* | NET DEBT: | 51% | |
| Half-year to 30 June | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 292 | 33.5 | 32.3 | 9.4 |
| 2018 | 295 | 28.9 | 28.2 | 10.0 |
| % change | +1 | -14 | -13 | +6 |
| Ex-div: | 29 Nov | |||
| Payment: | 3 Jan | |||
| *Includes intangible assets of £183m, or 232p a share | ||||
