MIDAS SHARE TIPS: Crash barrier maker Hill & Smith has the right Formula for growth
Hill & Smith is a UK manufacturer that has been transformed in recent years.
It has withstood the economic downturn, developed a thriving business in the US and should deliver strong growth. The shares stand at 549p and offer good, long-term value.
Hill & Smith makes temporary barriers used when roads are being upgraded. It also makes permanent barriers to prevent cars careering off motorways and builds roadway signs alerting drivers to speed limits, forthcoming traffic and roadworks.
Shock absorber: Hill & Smith makes roadside barriers for customers including Formula 1
The Wolverhampton-based firm even makes the Armco barriers for Formula 1. The company is run by Derek Muir, who has worked there for 27 years and been at the helm for the past eight. Knowing the business inside-out clearly helps.
Profits have more than doubled under his watch, half-year figures to the end of June were robust and Muir is optimistic about future earnings. In 2006, Hill & Smith was entirely UK-focused. Today, 40 per cent of profits come from America and a further 20 per cent from the Continent.
Overseas growth allowed the group to withstand the economic downturn better than many rivals and to increase sales as the recovery picked up.
The Government has a £24billion investment programme for UK roads from the start of this year to the end of 2021, with big upgrades planned for busy motorways such as the M1, M3, M4, M5 and M6.
Knowledge: Hill & Smith is run by Derek Muir
Hill & Smith is a direct beneficiary of this and Muir expects sales and profits from this work to increase significantly over the next few years. Substantial upgrades are underway in the US too, further boosting Hill & Smith revenues, and the company has a flourishing business in Scandinavia, where road safety is a government priority.
However, the company does not focus solely on roads. It makes products for the energy and industrial sectors, such as pipes, metal flooring and handrails. These are used the world over, from Crossrail and Thames Water in the UK, to shale gas producers in America and even the new metro system for Hawaii.
Honolulu has America’s worst congestion and the new railway will link Honolulu to Pearl Harbour for the first time since trams were withdrawn before the Second World War.
In recent years, Hill & Smith has become increasingly involved in the galvanising sector, dipping components that will make street lights, bridges and fencing, for instance, in molten zinc to prevent them rusting.
The business has particularly good prospects in the US, where profit margins are high and demand is strong. Hill & Smith is a large, international business, but Muir provides local managers with relative autonomy, incentivising them to run each part of the business as if it were their own.
The concept encourages an entrepreneurial culture, and results are robust. Brokers forecast a profit of more than £43million for 2014, up 5 per cent from last year with the dividend up 6 per cent to 17p.
Like most international businesses, Hill & Smith has been affected by the strength of sterling, but for 2015 profits of almost £47million are expected with a dividend of 18.2p.
Midas verdict: Hill & Smith makes a broad range of products, most of which are used in the transport and energy sectors. Investment in these industries is picking up as economic recovery gains ground and Hill & Smith is well positioned to benefit. At 549p, the shares are a buy.
> More from Midas this week: Midas Update on RWS Holdings
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