Stock of the week: Hill & Smith
FTSE 250 listed company Hill & Smith manufactures vehicle restraint systems, such as steel barriers, for dual carriageways and central reservations. Rising infrastructure spending has been helping boost the group’s performance of late. This was recognised in the group’s most recent figures in which it reported a 22% jump in profits, beating expectations. Indeed, the UK government is in the middle of a £15bn roads investment programme which aims to increase the number of “smart” motorways. The scheme runs until 2021, and with the company having invested significantly in its safety barriers, it hopes to continue to benefit.
Many of the group’s end markets are flourishing in different countries and closer to home, the galvanizing operation in the UK is growing well following a recent acquisition. Investors should note that Hill & Smith has also successfully expanded into the galvanizing sector in the US. A further facility has been opened in Memphis paving the way for growth in what is a highly profitable business.
This is a company that has a strong management team, led by CEO Derek Muir, a veteran of 27 years in the business. The group commented that political and macroeconomic uncertainties had increased in the first half, but it was reassuring to note that the group didn’t change their full year guidance.
Dividend payments have increased every year for the past 14 years, and by an average of 10% a year for the past five years. They are more than twice covered by earnings and expected to continue rising ahead of inflation for the foreseeable future. Moreover, the company has been investing heavily in new assets which should ultimately boost earnings further.
Due to the group’s exposure to the growth in investment in the infrastructure and utilities sectors, both in the UK and US, combined with a good dividend yield and strong management, we recommend Hill & Smith as a ‘buy’ for medium risk investors with a balanced portfolio.