Formerly mini-conglomerate AMCO, Billington Holdings has restructured and renewed its strategic focus. Concentrating on its structural steel and engineering operations, and with global demand for mineral resources acting as a tailwind, the cash-rich company offers exposure to good organic growth and a sizeable dividend.

‘AMCO was a conglomerate with a ‘lumpy’ property development division, yet it was the structural steel operations that provided the bulk of profits,’ recounts Peter Hems, who took over as executive chairman in April 2007.

He carried out a review of the group, which in April of this year resulted in the sale of non-core operations in construction, manufacturing and property investment and development. The process, resulting in the name change to Billington, brought £9.4 million of cash onto the books.

Billington is now wholly focused on its core operations. These include Billington Structures, a profitable steelwork contractor, Easi-Edge, a provider of safety barriers for workers in the construction industry and Hollybank, which makes steel arches for the mining industry.

Dosco, a globally renowned maker of underground tunnelling equipment and ‘roadheaders’ –
a type of excavating machinery – used in the booming global mineral extraction industry, forms the engineering arm.

‘Dosco makes underground tunnelling machines,’ explains Hems, ‘and in its industry it is the generic name, like Hoover, selling into China, India, Mexico and Russia. It has just been ticking along. Now, I would be looking to grow this business – that is the intention.’

Recently announced half-time results to June were strong, revealing a 31 per cent rise in continuing pre-tax profits to £2.3 million. This reflected improved results from the structural steel arm, where sales rose more than 20 per cent to £32 million, as well as a reduction in losses from £700,000 to £300,000 at Dosco, where the bulk of orders are traditionally second-half weighted. Half-time cash amounted to £11.7 million.

‘We’re pleased with these results,’ says Hems. ‘We’ve done what we said we’d do – we’ve sold part of the business and we’re sitting on some cash.’

While Billington is not immune from the state of the UK economy, and the construction sector in particular, its core businesses are increasingly focused on public sector work, as well as areas such as health and safety equipment, which offer a degree of resilience. Billington Structures has recently picked
up work in the education sector (schools and colleges), while Hollybank is seeing increasing demand for its specialist steelwork for underground tunnels, buoyed by a resurgent UK coal industry.
Rising input costs – energy and raw steel – represent challenges for Billington, while the slowing economy will likely put pressure on pricing. However, given its healthy cash balances and £55 million order book, Billington looks well placed to weather the storm. Moreover, the tougher trading environment should put rivals under increased pressure and could throw up suitable acquisition opportunities.

This year, house broker Brewin Dolphin is forecasting a rise in adjusted pre-tax profits from £4.8 million to £5 million, and in earnings from 28.6p to 30.2p. By 2009, profits should move ahead to £5.3 million and earnings to 32.4p. On those estimates – and this year’s expected dividend of 11.5p – the shares trade on inexpensive multiples of 5.8 and 5.4, while offering investors a yield approaching 6.6 per cent.

Furthermore, given forecast year-end cash balances of £12.6 million, the group’s enterprise value equates to a little over £10 million, which means Billington looks very good value indeed.

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