Hill & Smith Holdings PLC (LON: HILS)

Hill & Smith Holdings PLC (LON: HILS) is an FTSE 250 index listed industrial engineering Company engaged in the supply & manufacturing of galvanizing services and infrastructure products. HILS operates through three segments: Roads & Security, Utilities, and Galvanizing Services.

On 03 August 2022, HILS will release H1 FY22 results for the six months ending 30 June 2022

Recent Trend of Dividend Payments

HILS will pay a final dividend of 19.00 pence per share on 08 July 2022, while the ex-dividend date was 01 June 2022. It has taken a full-year FY21 dividend to 31.00 pence per share. In comparison, HILS had paid a total dividend of 26.70 pence per share for FY20. Thus, the total dividend growth remained at around 16.10%.

(Data Source: LSE Website, Research done by Kalkine Group)

Growth Prospects (covers Trading Update released on 24 May 2022)

• Acquisitions & Disposals: HILS has completed the disposal of Sweden roads rental division at the end of April 2022. Moreover, it is also identifying options for the remaining parts of this business. The acquisition of Prolectric Services Ltd would strengthen the Company’s off-grid solar energy solutions division. Meanwhile, the Government’s Road Investment Strategy 2 would support HILS’ medium-term growth.
• ESG Strategy: HILS plans to accelerate its ESG strategy and become carbon net-zero by 2040

Key Risks 

• Low Utilisation Levels: For the Roads & Security division, the utilisation of the UK temporary safety barrier fleet for the first four months of 2022 remained lower than the prior-year levels.
• Record UK Inflation: The rise in regulated household energy bills led to UK inflation leaping to 9% in April 2022, the highest level since 1982. It may adversely impact UK equities.
• Impressive US Jobs Data: The S. jobs report released recently had signalled more interest rate increases in 2022 that could adversely impact the global equities.
• Bank of England Warning: The Bank of England had trimmed its economic growth forecast for 2023 and is expected to show a contraction of 0.25% from a previously estimated growth of 1.25%. Moreover, it had also warned of UK inflation reaching around 10% very soon.

Key Fundamental and Shareholders Statistics of Hill & Smith Holdings PLC. 

Aberdeen Standard Investments (Edinburgh) is the most significant shareholder as it holds nearly 7.91 million shares.

Financial Highlights (for the year ended 31 December 2021, as of 10 March 2022)

(Source: Company Filings)

• Revenue Growth: The Group reported over 7% increase in revenue to £705.00 million in FY21, compared to £660.5 million in FY20.
• Operating Profit: Operating profit grew by an impressive 23% to £86.0 million in FY21, from £69.9 million in FY20 along with an improvement in operating margin.
• Balance Sheet: HILS had managed to marginally reduce the net debt from £146.2 million as of 31 December 2020 to £144.7 million as of 31 December 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 08 June 2022 at 11:55 AM GMT+1, HILS’ shares were trading at GBX 1,360.00, down by around 1.45% against the previous day closing price. Stock 52-week High and Low were GBX 1,922.00 and GBX 1,175.00, respectively.

On a daily chart, the MACD line has given a bullish crossover against the signal line, indicating an upside potential in the stock price. Also, the 14-days RSI stood at ~47.83 levels.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

The Group reported impressive results in FY21 and posted decent growth in both the top line and bottom line. HILS has undertaken several steps to implement price increases to combat input cost inflation, with steel being the most impacted category for the Group. Meanwhile, the Company remained on track to deliver the full year 2022 underlying operating profit of about £92.0 million. Overall, the Company seemed optimistic regarding the medium to longer term outlook, positively driven by strong market growth drivers for both sustainable infrastructure and safe transport.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering decent top-line business, modest profitability margins, strong dividend growth, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Hill & Smith Holdings PLC at the current market price of GBX 1,360.00 (as of 08 June 2022 at 11:55 AM GMT+1), with lower-double digit upside potential based on 18.93x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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