Interactive Investor

Insider: the top UK firm that will benefit from US stimulus

15th March 2021 09:35

Graeme Evans from interactive investor

Heavy spending on the US recovery is one reason why this director is buying these shares.

Joe Biden's $1.9 trillion stimulus plan has boosted boardroom optimism at Hill & Smith (LSE:HILS) after its chairman bought £50,000 of shares in the FTSE 250-listed infrastructure specialist.

The purchase by Alan Giddins came during a big week for the road safety barriers firm, with shares 9% higher on the back of robust annual results and relief that the White House's long-awaited support measures have been signed off.

Solihull-based Hill & Smith generates about 70% of its profits in the US, with its areas of expertise including galvanising services for use in highways, construction and utilities.

Its US-based operations also span electricity distribution substations, pipe supports and roadside safety products, with the company telling investors in the results that it is well placed to take advantage of the increased step-up in spending.

The UK's funding for Road Investment Strategy 2 (RIS2) also offers encouragement, although an inquiry by MPs into the safety of smart motorway schemes remains a concern ahead of the expected go-ahead for work in the second half of the year. 

New chief executive Paul Simmons, who took over in November, has confirmed that the US and UK will remain the company's key areas of focus for organic growth and targeted acquisitions.

But his results-day presentation also tweaked the strategy of predecessor Derek Muir, who ran the company for 14 years. He will look to increase the rate of innovation and identify new niche markets, as well as place greater emphasis on margins and longer term growth.

Underpinning this will be continued strong cash generation, which last year allowed the company to reduce debt by £69.1 million to £146.2 million and award a bigger-than-expected dividend of 17.5p a share for payment on 9 July.

Simmons' target is for 90% underlying cash conversion, which will be reinvested into growing existing businesses and to fund acquisitions. The company operates from 76 sites in six countries, with 4,400 employees and only 20 head office staff.

Shares closed at 1,398p on Friday after the better-than-expected results showed a robust recovery from Covid-19 disruption at the start of the year.

Investec Securities has a price target 1,600p and says the shares are attractively valued based on the exposure to growing UK and US investment, although with 70% of profits coming from the US they also noted a potential headwind from recent dollar weakness.

The broker said: “The new CEO is making positive changes. Hill & Smith provides high-quality exposure to increasing infrastructure spending and offers an attractive free cash flow yield of 5.7%.”

Peel Hunt added that the market backdrop was “undoubtedly favourable”, with shares currently trading on 18 times its 2021 earnings forecast. They reiterated their price target of 1,500p.

Giddins, who became chairman in 2019 after stepping down as managing partner and head of private equity at 3i Group, bought his shares at 1,332p.  It is the fourth time he has bought shares in the company since he joined the board in 2017.

Metro Bank chair is sharp cookie

Another chairman spending big on company shares last week was new Metro Bank (LSE:MTRO) head Robert Sharpe.

His £20,000 purchase was made at 123.6p, which is more than double Metro's heavily shorted price in November when Sharpe bought his first shares in the challenger bank to mark his appointment as chairman.

The shares had been almost 150p in February, but suffered a 7% results day reversal when Metro posted an annual loss of £311.4 million and said its all-important net interest margin had deteriorated to 1.22% from 1.51% a year earlier.

While the pandemic was a big factor in the performance, chief executive Daniel Frumkin said the company's turnaround strategy focusing on higher yielding assets was on track.

This has seen it move into specialist mortgages, while Metro has also entered the unsecured lending market through the purchase of the RateSetter peer-to-peer platform. In addition, a £3.1 billion disposal of residential mortgage assets has bolstered the balance sheet.

Frumkin staked £1 million of his own money on Metro's recovery in November, having taken the helm at the start of last year. Shares were more than 4,000p in March 2018 but were sent into a tailspin by an accounting error and then the impact of Covid-19 on industry sentiment.

The bank, which marked its 10th anniversary in 2020, had 2.2 million customer accounts and deposits of £16 billion at the end of last year. 

During his 45-year career in retail banking, Sharpe led the transformation of West Bromwich Building Society, having also been CEO at the Portman Building Society and boss of Bank of Ireland's consumer business in the UK.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories