Infrastructure firm Hill & Smith (HILS) posted profits for the year to December which under-shot market estimates by some distance.
However, investors decided to chase the shares up as much as 11% to £14.36 thanks to the positive medium-term outlook.
PROFITS COME UP SHORT
The firm, which mainly supplies steel products to the utility, transport and construction sectors, reported sales of £705 million for last year compared with £660.5 million for 2020.
Pre-tax profits came in at £50.9 million compared with £35.5 million in 2020, but the consensus forecast was for earnings to top £65 million according to S&P Market Intelligence.
New chief executive Paul Simmons said the firm had set out ‘an ambitious agenda’ a year ago and had navigated the various supply chain and inflationary pressures well.
‘In 2022 we expect to make good progress despite the ongoing headwinds and geopolitical uncertainties. In the medium to longer term, the positive outlook is supported by strong market growth drivers for both sustainable infrastructure and safe transport’, he added.
INCREASED SPENDING
In the US, which is where the group sells most of its products, the business is well placed to benefit from the increased spend approved under President Biden’s Infrastructure Investment and Jobs Act.
Demand from the US utility sector to upgrade the national infrastructure and protect its installations from more extreme weather events is also seen driving demand in the medium term.
In the UK, the firm expects growth in the medium term to be supported by the government’ commitment to increase funding levels for its Road Investment Strategy 2 programme.
Investment in the roll-out of smart motorways represents £4.5 billion of the overall RIS2 budget of £27.4 billion between 2020 and 2025.
However, in January the government announced that no new smart motorways would be built under a full safety review had been completed, sending shares in Hill & Smith sharply lower.
EXPERT VIEWS
Analysts Tom Fraine and Akhil Patel at Shore Capital kept their Hold recommendation on the basis the firm’s growth opportunities were ‘fairly reflected in the current share price’ and placed their £17 target under review.
Prior to today’s bounce, the stock was trading on 16 times Shore’s forecast for 2022 earnings per share and nine times EV to EBITDA (enterprise value to earnings before interest, taxes, depreciation and amortisation).
In contrast, Numis analyst Dominic Convey maintained his Buy recommendation and £20 price target on the strength of the firm’s exposure to the booming US infrastructure market.
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