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.

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

• 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. Meanwhile, the Company remained focused on improving the quality of the portfolio, in line with the refreshed strategy.
• 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 

• Tightening of Monetary Policy: Federal Reserve Chairman, Jerome Powell, had hinted at an 0.5% increase in interest rates in the next Federal Reserve meeting due in early May 2022. Meanwhile, the Bank of England is expected to raise interest rates to their highest level in 13 years on 05 May 2022.
• Risk of Inflation: The Group is prone to the impacts of inflation, which has been reported at 7% in the period 12 months to March 2022, and there is a possibility of further increase moving ahead.
• Weak Global Growth Forecast: The World Bank has reduced its global growth forecast for 2022 from 4.1% to 3.2%.

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. 

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

(Source: Company Website)

• 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 04 May 2022 at 08:03 AM GMT+1, HILS’ shares were trading at GBX 1,340.00, down by around 3.04% 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 between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood at ~34.43 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. It has witnessed a decent recovery across all the divisions and delivered margin improvements. Moreover, the Company remained in a resilient financial position to support future organic and inorganic growth opportunities. Meanwhile, HILS plans to accelerate its ESG strategy and become carbon net zero by 2040. 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 decent top-line business, sustainable business model, 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 1,340.00 (as of 04 May 2022 at 08:03 AM GMT+1), with lower-double digit upside potential based on 19.19x 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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