Interactive Investor

Two FTSE 250 stars with US momentum

Their exposure to a potential soft landing for the US economy has helped these two mid-caps race ahead this year. How did they fare after today’s results?

9th August 2023 13:44

by Graeme Evans from interactive investor

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US momentum 600

Two stars of the FTSE 250 index raised hopes of further progress today as their results showed them continuing to benefit from the resilience of the US economy.

Highways infrastructure firm Hill & Smith (LSE:HILS) gave full-year guidance modestly ahead of City expectations after a record first-half performance driven by its US operations.

Corporate merchandise specialist 4imprint Group (LSE:FOUR), which generates about 98% of its revenues from North America, followed up last week’s earnings upgrade by reporting all-time high customer demand and a 50% jump in half-year profits to $66 million (£51.9 million).

Hill & Smith shares added another 100p to 1,670p by lunchtime, taking gains for this year to around 40%, while 4imprint put on 50p for a year-to-date 19% increase to 5,130p.

Both stocks were backed to go higher after their results, with US bank Jefferies having a target price of 1,770p for Hill & Smith. Broker Peel Hunt reiterated “buy” recommendations on both stocks, with 4imprint getting an unchanged target price of 6,400p.

It called 4imprint a “star in the sector” after revenues rose 23% to $636 billion (£500 million) on the back of an 18% increase in total order numbers to 1.05 billion and 8% growth in new customers.

The Manchester-based company boosts marketing campaigns by supplying branded products ranging from basic giveaways such as pens and mugs to embroidered apparel and trade show displays.

It expects further market share gains in the second half, although the percentage increases in total order activity of the first half are likely to moderate due to tougher comparatives.

Annual revenues will now be slightly above $1.3 billion (£1 billion), with pre-tax profits not less than $125 million (£98.2 million). It backed up its optimism by revealing that the interim dividend for payment on 15 September will rise by 54% in sterling terms to 50.8p a share.

For Hill & Smith shareholders, the payout due for distribution on 5 January has increased by 15% to 15p a share.

This follows a 20% rise in revenues to £420.8 million and 240 basis point jump in operating margin to 14.9%, which together produced a 39% rise in earnings per share to 53.6p.

The results showed a heavier weighting towards faster-growing US end markets, which accounted for 73% of group profits.

This was seen in the “exceptional performance” of the company’s engineered solutions division, which supplies steel and composite materials to a range of infrastructure markets including energy generation, marine, rail and housing.

Demand was also underpinned by the ongoing modernisation of the US electric grid, while in galvanising services the US arm delivered record revenue and operating profit.

The UK roads and security portfolio reported revenues and profits lower than a year earlier, reflecting the more challenging UK economic backdrop.

Overall, Peel Hunt said: “Hill & Smith’s end markets are in good health and we see it as one of the best ways to play the wave of infrastructure investment in the US. We also see plenty of scope for further M&A.”

The broker notes that the shares are trading on less than 15 times forward earnings, which compares with the five-year average of 17 times.

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