Hill & Smith

Diverse and dependable, Hill & Smith delivered earnings growth once again in a challenging first half of 2010.

Interims to June from the designer and supplier of infrastructure products and galvanizing services were delivered amid ‘improving but still muted’ economic conditions. Revenue eased off 1.7% to £193.5m, yet tight cost control and the balanced nature of its business helped Hill & Smith deliver 5% growth in pre-tax profits to £21.5m. From earnings increased 7% to 19.2p, dividends were lifted to 5.2p (2009: 4.7p).

Derek Muir, CEO, attributed the pleasing performance to the ‘niche market positioning’ and ‘widening geographical spread’ of Hill & Smith, which makes more than 50% of its profits from operations in the US, France, Thailand and China.

Margins did come under pressure at the Infrastructure Products arm, where the group supplies everything from road safety barriers to pipe supports, with the power and petrochemical markets notably tough. Nevertheless, the division still made a creditable £10.6m (2009: £12m) profit on £100.5m (2009: £99.7m) sales, with the UK roads business doing well.

Profits pushed 20% higher to £12m in Galvanizing Services, with zinc price volatility managed successfully and margins remaining healthy. Over in Building and Construction Products, profits of £900,000 were significantly ahead of the £200,000 made in H2 2009, reflecting improving construction sector sentiment. Net debt fell by more than £11m to £76.4m during the half, leaving Hill & Smith increasingly well placed for acquisitions opening up new geographical markets.

Having fallen from 377p highs on worries regarding reduced road project spend, Hill & Smith’s income-generating shares, backed by Growth Company Investor at 215.25p last year, sell for less than seven times forecast earnings of 40p. With risks more than priced in, this resilient performer is worth re-visiting. Top up existing holdings.