Hill & Smith Holdings

Shares in Hill & Smith, the infrastructure products-to-galvanizing play, have moved higher on news the company has clinched the largest private finance initiative (PFI) street lighting contract in the UK.

Hill & Smith has secured a £10m, five-year contract from Southern Electric Contracting (SEC) under the South Coast Street Lighting PFI, in partnership with Caparo Steel – Hill & Smith will supply some 100,000 lighting columns to the project under the terms of the deal. Including lighting services for Hampshire County Council, Southampton City Council and West Sussex County Council, the work also involves the replacement and maintenance of bollards, illuminated signs and streetlights. Hill & Smith, which won an £8m, five-year deal for 72,000 lighting columns under the Surrey Street lighting PFI Scheme last year, is bidding for further schemes.

A group with international reach – customers are served from operations mainly in the UK, France, USA, China and Thailand – the real excitement with Hill & Smith comes from its higher margin infrastructure products business, focused on the roads, rail, utilities and security sectors and benefiting from economic stimulus spend in Europe and the US. Making and supplying everything from road safety barriers and bridge parapets to temporary car parks, traffic data collection systems and pipe supports for the power sector, the company is well placed to profit, in particular, from several years of secure, committed spend in the UK highways sector.

Recent trading in Hill & Smith's infrastructure and galvanizing operations has been ahead of expectations, though its smaller building and construction product businesses have found the going far tougher. Nevertheless, when 2009 results are announced in March, investors can expect improved profits of £41.1m (2008: £38.9m), earnings of 36.5p (2008: 31.8p) and a dividend hike from 10p to 11p.

On those estimates, the shares, backed by Growth Company Investor at 215.25p last June, are swapping hands for only 9 times earnings and offer a 3.3% yield. Undoubtedly, they remain good value, although with the shares 53% north of our tip price, some partial profit taking might be prudent. Stay invested for long-term growth however.