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Crash barrier maker has the right formula for growth [Financial Mail on Sunday, London :: ](Daily Mail (London, England) Via Acquire Media NewsEdge) Aug. 31--Hill & Smith is a UK manufacturer that has been transformed in recent years. It has withstood the economic downturn, developed a thriving business in the US and should deliver strong growth. The shares stand at 549p and offer good, long-term value. Hill & Smith makes temporary barriers used when roads are being upgraded. It also makes permanent barriers to prevent cars careering off motorways and builds roadway signs alerting drivers to speed limits, forthcoming traffic and roadworks. The Wolverhampton-based firm even makes the Armco barriers for Formula 1. The company is run by Derek Muir, who has worked there for 27 years and been at the helm for the past eight. Knowing the business inside-out clearly helps. Profits have more than doubled under his watch, half-year figures to the end of June were robust and Muir is optimistic about future earnings. In 2006, Hill & Smith was entirely UK-focused. Today, 40 per cent of profits come from America and a further 20 per cent from the Continent. Overseas growth allowed the group to withstand the economic downturn better than many rivals and to increase sales as the recovery picked up. The Government has a pounds sterling 24 billion investment programme for UK roads from the start of this year to the end of 2021, with big upgrades planned for busy motorways such as the M1, M3, M4, M5 and M6. Hill & Smith is a direct beneficiary of this and Muir expects sales and profits from this work to increase significantly over the next few years. Substantial upgrades are underway in the US too, further boosting Hill & Smith revenues, and the company has a flourishing business in Scandinavia, where road safety is a government priority. However, the company does not focus solely on roads. It makes products for the energy and industrial sectors, such as pipes, metal flooring and handrails. These are used the world over, from Crossrail and Thames Water in the UK, to shale gas producers in America and even the new metro system for Hawaii. Honolulu has America's worst congestion and the new railway will link Honolulu to Pearl Harbour for the first time since trams were withdrawn before the Second World War. In recent years, Hill & Smith has become increasingly involved in the galvanising sector, dipping components that will make street lights, bridges and fencing, for instance, in molten zinc to prevent them rusting. The business has particularly good prospects in the US, where profit margins are high and demand is strong. Hill & Smith is a large, international business, but Muir provides local managers with relative autonomy, incentivising them to run each part of the business as if it were their own. The concept encourages an entrepreneurial culture, and results are robust. Brokers forecast a profit of more than pounds sterling 43 million for 2014, up 5 per cent from last year with the dividend up 6 per cent to 17p. Like most international businesses, Hill & Smith has been affected by the strength of sterling, but for 2015 profits of almost pounds sterling 47 million are expected with a dividend of 18.2p. Midas verdict: Hill & Smith makes a broad range of products, most of which are used in the transport and energy sectors. Investment in these industries is picking up as economic recovery gains ground and Hill & Smith is well positioned to benefit. At 549p, the shares are a buy. –––– MIDAS UPDATE Patent specialist RWS Holdings has had a rough ride this year. The shares have tumbled from 1018p in February to 794p today, reflecting disappointment with the group's 2013 buyout of Australian patent filing platform inovia and fears about the effect of the strong pound on profits. Few people are more irked by the shares' decline than chairman Andrew Brode, who has steered the firm, based in Gerrards Cross, Buckinghamshire, from one of the tiddlers on Aim ten years ago to a value of more than pounds sterling 300 million today. Brode holds 42 per cent of the shares so he has a keen interest in the group's share price performance. Midas last looked at RWS in March 2009, when the shares were just 240p. Even after this year's decline, investors have done well. But there is potential for gains this year and beyond. RWS translates complex documents, especially patents. A German firm may file a patent in Germany, but it will need to be translated into English, French and Japanese to be filed in those countries. The group translates more than 65,000 patents a year and top customers include Ford, Shell, German engineer Siemens, German chemical giant BASF and Chinese telecoms group Huawei. These global firms are constantly refining existing products and developing new ones. Each time they must file patents, not just at home but worldwide. RWS is the leading European player in this field and turnover should rise steadily over the next few years. Many firms held back on research and development in the downturn but are investing more heavily again. This inevitably feeds through into more patents being filed–– and translated. Inovia allows firms to file patents online and, though it is based in Sydney, most of its customers tend to be mid-West lawyers working on behalf of small and medium-sized US firms. Having performed well between 2011 and 2013, inovia took its foot off the pedal last year and growth slowed, particularly in its US heartland. Brode has now taken steps to boost performance and in time, inovia should prove to be a canny acquisition. RWS has made good progress in the past five years, increasing profits by 50 per cent during that period to pounds sterling 21million and doubling the dividend to 20.3p. Profits are forecast to rise almost 8 per cent to pounds sterling 22.6 million and the dividend is predicted to increase by at least 9 per cent to more than 22p. Midas verdict: RWS has considerable potential for growth and a history of generous dividends. Brode is determined to deliver. Existing investors should hold and new ones may find value at current levels. ___ (c)2014 Daily Mail (London, ) Visit the Daily Mail (London, ) at www.dailymail.co.uk/home/index.html Distributed by MCT Information Services |