Bulls are winning at this FTSE 250 stock and one former mid-cap
These companies have moved in very different directions over the past 15 months, but both are heading higher after latest results. One of them is up 33%. City writer Graeme Evans reports.
12th March 2024 13:52
by Graeme Evans from interactive investor
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Record results by infrastructure business Hill & Smith (LSE:HILS) and the green shoots of recovery at polymers firm Synthomer (LSE:SYNT) today put their shares in the mid-cap spotlight.
The strong performance of Hill & Smith, driven by robust US demand for its engineered solutions and galvanising services, showed why the shares are near an all-time high as one of the best performers in Wild’s Aggressive Winter portfolio.
The question for followers of the FTSE 250 stock will be whether today’s annual results are sufficient to allow the shares to kick on above the 2,000p threshold for the first time. They're currently 1,858p.
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The figures for 2023 point to continued strong momentum after revenues lifted 13% to £829.8 million and the operating margin improved by 150 basis points to 14.8%, resulting in a 27% rise in annual profits to £111.9 million.
Strong cash conversion continues to underpin the company’s value-enhancing acquisition strategy as well as a dividend policy that will see shareholders get 28p a share on 5 July, representing a 27% increase on a year earlier.
Numis Securities, which has a price target of 2,250p, said the full-year outturn came in comfortably ahead of its expectations despite five upgrades through the year.
The broker added: “The group is increasingly well-positioned for the anticipated growth in US infrastructure investment over the medium term, and we are confident that the positive earnings momentum will continue through 2024.”
The faster-growing US market accounted for 76% of operating profit in 2023, with this exposure further enhanced today by the acquisition of a Georgia-based maker of stainless steel pipe supports for water and wastewater end markets.
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Today’s results presentation highlighted the success of V&S Utilities, which fabricates and supplies structural steel and component packages for US high voltage electrical substations and transmission and distribution lines.
It has recorded five-year revenue and operating profit compound growth of 13% and 21%, driven by the need for grid modernisation and aided by government funding packages.
Margin pressure meant the group’s third operating division of Roads & Security suffered a big fall in 2023 operating profit, although a recovery is expected in the current financial year.
Executive chair Alan Giddins said he expects further progress for the group in 2024 and beyond, fuelled by selective M&A in order to acquire complementary technologies and target new customers and end markets.
A share that's up a third today
At former FTSE 250 stock Synthomer, the guidance that its trading has been “cautiously encouraging” since the turn of the year helped to drive shares up by a third to 195p.
Synthomer, which was known as Yule Catto until 2012, had been near to 4,000p in 2021 after demand for its nitrile rubber gloves surged during the pandemic.
However, this was followed by a prolonged period of industry destocking, while increased global competition in some base chemicals meant today’s results showed a 15.6% fall in revenues to £1.97 billion for a pre-tax loss of £27.2 million.
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Synthomer cautioned that evidence of a broad-based demand recovery remains limited, but with net debt halved following last autumn’s £276 million rights issue the company believes it is now better placed for longer-term growth.
Chief executive Michael Willome added: “In the medium term, we remain confident that Synthomer’s earnings power is more than double recent levels, through a combination of our near-term self-help actions, end market recovery and delivery of our speciality solutions strategy.”
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