Questor share tips: Hill & Smith weathers the downturn

By Garry White

Published: 5:40PM GMT 09 Mar 2010

Midlands-based industrial group Hill & Smith has weathered the downturn
pretty well – and its focus on cash management has put it in a strong
position.

Last's year's results, released yesterday, came in ahead of expectations.
Revenues fell by 7pc to £389m, but pre-tax profits rose to £39.7m from
£35.1m in 2008 - hitting a record high in one of the toughest years the
industry has seen for sometime. This is a credit to the group's cost cutting
and cash management drive.

The group even managed to slash its net debt to £87.6m from £146.2m over the
12-month period.

Hill & Smith operates in three divisions – infrastructure, galvanising and
building and construction products. It is exposed to stimulus spend on both
sides of the Atlantic.

The roads operation of its infrastructure business has been strong throughout
the downturn. It currently has all of its road barriers – which stretch to
173,000m – in use on the UK roads network. With its contracts for roadworks
on the M1 and M25, it has 45pc of business for this operation for the next
three years.

Derek Muir, the group's chief executive told Questor yesterday that its
galvanising business was stable and the group has started to see a pick up
in its construction operations.

It has also recently won contracts for new street lighting columns in
Hampshire and Surrey and it is bidding for contracts in Oldham, Rochdale and
Coventry.

Moreover, the company is seeking to expand. It is already one of the country's
largest suppliers of galvanised steel, with Mr Muir looking for a move into
renewables. Solar panels need to be attached to buildings in steel frames
and this is the main area of interest, but the company also wants business
in utilities.

Hill is expanding its operations in US, India and China. Its first US
galvanising plant in Delaware had a successful first year and it has
introduced its temporary vehicle restraint system, Zoneguard, into Canada.

The company increased its full-year dividend payment by 15pc to 11.5p. The
final payment of 6.8p will be paid on July 9 and the shares trade
ex-dividend for this payment on June 2. The dividend is 3.3 times covered by
earnings.

The shares were first recommended at 202p on February 7 last and they are up
74pc compared with a market up 30pc.

Trading on a December 2010 earnings multiple of just 9.2 times and yielding
3.3pc, the stance remains buy.

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