Hill & Smith Holdings PLC

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.

On 10 March 2022, the Company will release FY21 financial results for the year ended 31 December 2021.

Investment Rationale – BUY at GBX 1,366.00

• Solid Dividend Payments: The Company had shown a solid 30% year-on-year growth in interim dividend attributable for H1 FY21.
• Strong H1 FY21 Results: The Company has shown decent year-on-year revenue growth of around 12% during H1 FY21. Furthermore, the underlying profit before taxation rose by around 72% during H1 FY21.
• Favourable Industry Dynamics: The recent surge in Steel Rebar Futures and Steel Scrap Futures may benefit the Utilities business division of HILS.
• Technical Indicator: From a technical standpoint, the momentum oscillator, 14-day RSI (~33.63) is hovering close to the oversold position, while the stock price is trading around the lower Bollinger Band.

Risk Assessments

• Supply Chain Headwinds: The Company has faced supply chain constraints regarding the availability of materials and labour.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

Trading Update (for the four-month period to 31 October 2021, as on 25 November 2021)

• Decent Top-Line Business: The revenue rose year-on-year by around 4% for the first four months of H2 FY21 ended on 31 October 2021.
• Net Debt: HILS has shown a marginal reduction in net debt from £154.6 million as of 30 June 2021 to £154.2 million as of 31 October 2021.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

Conclusion

HILS has undertaken several steps to implement price increases to combat input cost inflation, with steel being the most impacted category for the Group. Moreover, the acquisition of Prolectric Services Ltd would consolidate the Company’s position in off-grid solar energy solutions.  In a nutshell, the Company has produced a strong trading recovery during 2021. The stock made a 52 week High and Low of GBX 1,922.00 and GBX 1,271.06, respectively.

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.

Based on the surge in steel futures, decent H1 FY21 financial performance, and support from the valuation provided above, we have given a “BUY” recommendation on Hill & Smith Holdings PLC at the closing market price of GBX 1,366.00 (as on 02 March 2022).

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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. 

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 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 unfavorable movement in the stock prices.

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