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Operating margins are improving and exposure to troubled smart motorways is only small
Thursday 17 Mar 2022 Author: Steven Frazer

Hill & Smith (HILS) £14.12

Loss to date: 7.1%

Original entry point: Buy at £15.20, 20 May 2021

It’s been a disappointing start to 2022 for road safety engineer Hill & Smith (HILS) with more than a year’s worth of share price gains wiped out.

Most of the damage was done in early January when news came that the UK Government would temporarily halt the rollout of new smart motorways. These use the hard shoulder as an extra lane during peak traffic periods, but a series of serious collisions and fatalities have raised safety concerns and sparked a full investigation of their suitability.What may puzzle investors is why Hill & Smith’s share price should collapse by 25% when the company earns barely 2% of its annual revenue from smart motorway builds.

Last year’s group operating margins returned to management’s long-run 12% to 15% range (12.2%), a stark recovery from 2020’s 10.6% despite rising staff and raw materials costs.

The medium-term outlook for UK roads activity ‘remains positive’ according to broker Numis, with additional opportunities in the US and France. This could mean a sharp share price recovery once markets regain stability.

SHARES SAYS: We believe Hill & Smith remains an attractive long-run growth and income investment. Stay positive.

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