Hill & Smith Rises Most in Two Months on U.S. Acquisition Move

Hill & Smith Holdings Plc (HILS), a supplier of motorway barriers to U.K. construction firms, rose the most in almost two months after saying it is buying a U.S. distributor to drive growth amid U.K. government spending cuts.

Shares rose as much as 5 percent in London trading, the biggest gain since Jan. 11. The company said today it is buying Paterson Group Inc., a pipe supports and hanger distributor in the U.S., for $45 million.

In a separate statement, it said net income fell 11 percent to 24.6 million pounds ($39.8 million) in 2010.

“We do believe that the Scandinavian, Australian, Middle East and American markets are all good growth drivers for the future for the roads market,” Derek Muir, chief executive officer of the Solihull, England-based company said in a phone interview. Volumes at the company’s U.S. galvanizing business continued to be “strong” into the first two months, even though the U.K. market hasn’t “come back to life” he said.

The company is expanding overseas as the British government’s spending review has an impact on the company’s roads business. The company, which has operations in France, the U.S., Thailand and China, said today underlying profit from operations fell 2.3 percent to 45.9 million pounds.

Hill & Smith expects the acquisition will close on March 16, according to today’s statement. Many electricity plants in the U.S. will be replaced over the next two decades and the Paterson purchase will allow Hill & Smith to tap into that “strong market,” according to Muir.

It now generates 55 percent of its underlying profit from operations outside the U.K. compared with 2 percent four years ago, according to the company. Sales fell 4 percent to 374.2 million pounds in 2010, while earnings per share declined 12 percent to 32 pence from 36.3 pence.

‘Pigeon-Holed’

“The stock market has pigeon-holed Hill and Smith as a U.K. industrial proxy for U.K. government spending cuts and general negativity on the U.K. as a whole,” said Investec Securities analysts Chris Dyett and Andrew Wilson in a note to investors today. The company is “fundamentally misunderstood” and international sales will be a “key growth driver going forward,” they said.

Investec initiated coverage of the Hill & Smith today with a “Buy” rating and a target price of 420 pence.

Muir said operating profit and earnings per share achieved in 2010 may not be reached again until 2013, as U.K. cut backs lead to a “slower year” in the company’s U.K. roads business.

“It will probably be very close in 2012 but definitely there in 2013,” he said.

Paterson had sales of $59.6 million, according to its 2010 financial statements, Hill & Smith said. Paterson’s profit is expected to fall this year, the company said.

To contact the reporters on this story: Finbarr Flynn in Dublin at fflynn3@bloomberg.net;

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net

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