TT Electronics and Hill & Smith

“For a second day the FTSE 100 is enjoying modest gains although the index is still trading only slightly higher than it was a month ago, reflecting the lack of momentum behind stocks at present,” says AJ Bell Investment Director Russ Mould.

TT Electronics

“When electrical components manufacturer TT Electronics snapped up its smaller peer Stadium earlier this year it was with the aim of accelerating its profit improvement plans.

“TT is in the middle of a three-year turnaround plan designed to transform the company into a higher growth, higher margin electronics supplier.

“Today’s first half results from the company suggest that, supported by acquisitions like Stadium, it is making significant progress towards that goal. Underlying profit is up nearly 40% with returns on invested capital hitting 11.2% and margins up 150 basis points.

“No wonder the company feels confident enough to guide for full year results to be ahead of expectations and to hike the dividend 11%.

“To really put itself in the top echelons of quality stocks though, it will be looking to push returns on capital towards the 15% mark.”

Hill & Smith

“All great runs have to come to an end eventually and infrastructure specialist Hill & Smith hits a significant road bump after warning on profit alongside first half results.

The company makes roadside crash barriers placed on bends or the central reservation of motorways. It also makes street lighting, bridge-side fencing, pipe network support struts used by water companies and has a galvanising business.

“The shares have performed well in recent years as a ramp up in infrastructure spending has fired revenue and profit.

“What may be causing investors particular alarm this morning is the deterioration in the outlook since May. This implies a longer-term downward pressure on demand, rather than a shorter-term blip relating to a harsh winter which the company would already have been fully aware of in the spring.

“The company namechecks a cautious UK investment environment and volatile raw material costs hitting margins for its businesses on both sides of the Atlantic.

“This looks a poor example of expectations management. The company should probably have guided full year forecasts lower in May rather than expecting to make up the shortfall in the second half. Very often this is a recipe for a later warning down the line and so it has proved again.”

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