Hill & Smith Holdings PLC (LON: HILS)

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

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 will be 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 around 16.10%.

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

Growth Prospects

• Government Support: The UK Government remained committed to accelerating the funding for Road Investment Strategy 2 and supporting the Company’s medium-term growth. Moreover, the Company had made several investments towards the expansion of the rental fleet.
• Strategic Initiatives: HILS has undertaken several steps to implement price increases to combat input cost inflation, with steel being the most impacted category for the Group.
• Acquisitions & Disposals: The acquisition of Prolectric Services Ltd would consolidate the Company’s position in off-grid solar energy solutions. Meanwhile, the disposal of loss-making security access cover business and the closure of loss-making variable message sign business would improve the quality of the portfolio, in line with the refreshed strategy.
  

Key Risks 

• Federal Reserve Meeting: The Federal Reserve meeting scheduled for 16 March 2022 may result in the first interest rate hike since 2018. Thus, it may create pressure on global Equities.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Reduction in Government Spending: HILS generates most of its revenues from operations located in the UK and the USA, and whilst it is possible that a reduction in Government spending plans may decline the pace of its development projects.
• Supply Chain Headwinds: The Company had faced supply chain constraints regarding the availability of materials and labour. Moreover, the production capacity in some US galvanizing plants.

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

Aberdeen Standard Investments (Edinburgh) is the most significant shareholder as it holds nearly 6.36 million shares as of 31 December 2021.    

FY21 Financial Highlights (for the 12 months ended 31 December 2021, as of 10 March 2022)

(Source: Company Filings)

• Robust Top-line Business: The top-line revenue grew by around 7% during FY21, while on an organic constant currency, it rose by around 10%.
• Profitability: The basic earnings per share witnessed a year-on-year growth of around 42% during FY21.
• 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 16 March 2022 at 09:07 AM GMT, HILS’ shares were trading at GBX 1,412.00, up by around 1.15% 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 stock price is sustained above the 20-days exponential moving average of GBX 1,390.00. Hence, there could be an uptick in the stock price in the near term. Also, the MACD line has given a bullish crossover against the signal line.

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

Business Outlook

The Company ended FY21 with a decent year-on-year top-line revenue growth and an excellent increase in bottom-line profitability. Moreover, the Company had estimated to make good progress in 2022 despite ongoing industry-wide supply chain and inflationary challenges. Meanwhile, HILS confirmed that it has a negligible indirect exposure to customers and suppliers in Ukraine. Overall, the Company remained well-equipped to generate consistent returns for the shareholders, positively driven by strong market growth catalysts 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 the decent revenue growth during FY21, decent financial ratios, solid dividend growth, robust profitability, 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 price of GBX 1,412.00 (as of 16 March 2022 at 09:07 AM GMT), with lower-double digit upside potential based on 19.37x 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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