Hill & Smith stages spectacular recovery

Today’s response to latest results demonstrates why these shares consistently outperform every winter.

A resurgent Hill & Smith Holdings (LSE:HILS) has today cheered followers of interactive investor’s Winter Portfolios at the start of a big few days for the FTSE 250 index-listed motorway barriers specialist.

Shares rallied 7% to 1,470p after annual results met City expectations, with earnings per share growth of 4% to 80.7p and a 17th successive year of dividend growth — up 6% to 33.6p.

Source: TradingView Past performance is not a guide to future performance

The performance helped return the stock to near where it was prior to recent market volatility, which is good news for the interactive investor Consistent Winter Portfolio.

Hill & Smith is up 12% since the end of October, to again prove that the company's shares tend to do well in the colder months. Based on 10 straight years of positive returns at an average of 19.6%, it features in the widely-followed portfolio alongside InterContinental Hotels (LSE:IHG), Howden Joinery (LSE:HWDN), Croda International (LSE:CRDA) and Halma (LSE:HLMA).

• Find out about our successful winter portfolios
• ii Winter Portfolios 2019: Half-time update

The company continues to benefit from the commitment to infrastructure spending in its core markets of the UK and United States, with next Wednesday's Budget likely to provide a much clearer indication about forthcoming investment in the UK's strategic road network.

Under its Road Investment Strategy 2 (RIS2) programme, the government is expected to spend £25.3 billion between 2020 and 2025, up 66% on the previous five-year RIS1 programme. As this will inevitably mean more roadworks and the building of smart motorways, there should be increased demand for Hill & Smith's temporary road safety barriers.

Further details on these RIS2 schemes are expected to be released by Highways England this month, having delayed the announcement due to December's General Election. 

The company has already spent £15.2 million on upgrading its fleet, including an additional 72km of steel barriers and 10km of concrete barriers. It also delivers permanent road products such as vehicle restraint systems, bridge parapets, variable message signs, lighting columns and street furniture.

Despite the short-term delay to RIS2, the company expects “another year of good progress” in 2020.  Analysts at Investec Securities agreed, saying that the transition to RIS2 looked to be the key risk but that this should not detract from the “medium-term upside”.

Arden Partners also upgraded its recommendation from “Add” to “Buy”, based on a price target of 1,620p and 19 times 2020 price/earnings multiple.

The broker added:

“With virus-led fears occupying the market, we see Hill & Smith as being defensively positioned relative to other industrials.” 

The company has not been directly impacted by the coronavirus outbreak, given that it has no sales, manufacturing or sourcing from China.

Its roads business currently makes up a third of revenues, with the rest coming from utilities projects and its galvanizing services division, which provides corrosion protection in the form of zinc and other coatings.

The Solihull-based company, which employs more than 4,000 staff in seven countries, has benefited from significant investment in the replacement of ageing infrastructure and new infrastructure projects in the United States.

Operations in the UK and US generated 83% of revenues last year, with top-line growth in the two regions of 12% helping to offset a more challenging period for its Scandinavian roads business.