Shares in Hill & Smith (HILS) were marked down 43 per cent peak-to-trough following last August’s profits warning, but market sentiment, though far from bullish, has improved of late. Whether the infrastructure specialist’s full-year figures will provide additional reassurance is open to question as top-line growth is set against a 120 basis point contraction in the operating margin. Acquisition expenses, the cost of servicing defined-benefit pension schemes and a steep rise in goodwill impairments contributed to a 12 per cent decline in operating profits, although it’s clear that performance strengthened over the closing months of 2018.
The improvement, a part-reflection of the group’s seasonality, was also attributable to the phasing of revenues and the impact of acquisitions, seven of which were completed in 2018 and the early part of this year. The latest of these, Lancashire-based ATG Access, was snapped up for £22.5m at the end of February to strengthen the group’s supply capabilities in high-security vehicle barrier systems.
With Brexit looming, it’s interesting to note that the group has increased inventories by 14 per cent in readiness for Brexit, although given the overall import/export balance doesn’t appear to be overly exposed. But currency fluctuations could hit reported revenues and there’s potential for disruption at UK sea ports.
Bloomberg consensus gives 2019 operating profit of £85.8m, leading to adjusted EPS of 79.5p, rising to £89.8m and 83.2p in 2020.
| HILL & SMITH (HILS) | ||||
| ORD PRICE: | 1,178p | MARKET VALUE: | £932m | |
| TOUCH: | 1,178-1,180p | 12-MONTH HIGH: | 1,538p | LOW: 878p |
| DIVIDEND YIELD: | 2.7% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 371p* | NET DEBT: | 45% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 455 | 36.9 | 35.1 | 18.0 |
| 2015 | 468 | 33.2 | 30.9 | 20.7 |
| 2016 | 540 | 48.3 | 43.0 | 26.4 |
| 2017 | 585 | 70.2 | 68.6 | 30.0 |
| 2018 | 638 | 59.8 | 59.9 | 31.8 |
| % change | +9 | -15 | -13 | +6 |
| Ex-div: | 23 May | |||
| Payment: | 01 Jul | |||
| *Includes intangible assets of £184m, or 232p a share. | ||||
