Stock of the week - Hill & Smith in fast lane

M&A returned to London in a big way this week. Domino Printing Sciences accepted a £1 billion offer from America's Brother Industries, and TSB admitted it is in talks with Spanish bank Sabadell about a possible 340p a share offer for the Lloyds Banking offshoot.

But strip out takeovers, and the week's star turn has to be Hill & Smith.

Hill & Smith shares rose 12% this week to 665p, an all-time high. The company, which makes motorway crash barriers, speed limit signs and industrial pipe supports for gas, coal and nuclear power plants, confirmed that 2014 was a record year - adjusted pre-tax profit rose 12% to £46 million on revenue up 2.3% at £455 million.

It had a storming fourth quarter as the US operation and UK roads business did especially well. Galvanising volumes will continue to benefit from both the strong US economy and start of production at a new plant in Memphis, opened at the end of 201

These better than expected numbers sparked a round of earnings upgrades in the Square Mile and prompted Investec Securities to bump up its rating from 'add' to 'buy' and raise its target price to 690p.

And the UK government's ambitious new road investment strategy (RIS) should certainly underpin growth at the company's roads unit for years. The Department for Transport said last year it would spend £15.2 billion in the five years from 2015/16, much of it on motorway improvements, Hill & Smith's sweet spot.

It's already caused a sharp rise in demand for the firm's permanent and temporary safety barriers, and its bridge parapet product. "We enter 2015 with strong order backlogs and a good pipeline of enquiries," it said.

Investec raises estimates for 2015 adjusted pre-tax profit by 5% to £50.3 million, giving adjusted EPS of 48.1p. Profit forecasts for next rise by 5% to £54 million, but by 11% for EPS to 51.4p due to an anticipated cut in the tax rate.

That puts Hill & Smith shares on a forward price/earnings (PE) ratio of 13.8 times, dropping to less than 13 for next year.

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