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Hill & Smith rebounds

The infrastructure specialist is faring particularly well in the US
August 7, 2019

After suffering from adverse weather conditions in the first half of 2018, Hill & Smith (HILS) had a much-improved start to 2019 in the UK and the US, where the infrastructure specialist generates around 80 per cent of its revenues and 90 per cent of underlying operating profits. Utilities and galvanising turnover steadily improved in both countries, while US road revenues jumped from £8.7m to £28.2m, with investment in US road infrastructures supported by the Fixing America's Surface Transportation (FAST) Act and a slew of state investment initiatives. 

IC TIP: Buy at 1,137p

While the company reiterated its full-year expectations, chief executive Derek Muir said that “we’re a little cautious on the everyday work because we don’t know what’s going to happen with the Brexit situation”. Hill & Smith envisages a similar pattern in seasonality to last year, which began slowly and ended with a record second half – this will happen again, Mr Muir says. The company’s inventories lifted by around 7 per cent, some of which is attributable to acquisitions. It undertook some stockpiling in anticipation of the UK’s original March Brexit date, particularly in its galvanizing division, although some of this will have unwound since. 

Hill & Smith noted challenges in Sweden, Australia and France, the last of which was led by disruption from the gilets jaunes protestors, although these markets are significantly smaller than its two core locales.

Broker Investec forecasts full-year 2019 pre-tax profits of of £79.8m and EPS of 80.5p, rising to £86.3m and 85.7p in 2020.

HILL & SMITH (HILS)    
ORD PRICE:1,137pMARKET VALUE:£901m
TOUCH:1,130-1,137p12-MONTH HIGH:1,488pLOW: 878p
DIVIDEND YIELD:2.8%PE RATIO:17
NET ASSET VALUE:391p*NET DEBT:55%**
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201829528.928.210.0
201934033.433.910.6
% change+15+16+20+6
Ex-div:28 Nov   
Payment:3 Jan   
*Includes intangible assets of £209m, or 264p a share **Does not include lease liabilities of £33.6m