Hill & Smith (LON:HILS): A Compelling Long-Term Investment in Resilient Earnings and Insider Confidence

For income-focused investors and long-term growth seekers, Hill & Smith (LON:HILS) has emerged as a standout performer in the industrials sector. Over the past five years, the company has delivered a Total Shareholder Return (TSR) of 86%, significantly outperforming both its share price return of 66% and the market's 35% benchmark. This outperformance is not accidental but a result of disciplined earnings growth, a robust dividend policy, and recent insider buying that signals confidence in the company's strategic direction.

Earnings Momentum and Shareholder Rewards

Hill & Smith's financial performance underscores its ability to generate value. Earnings per share (EPS) have grown at a compound annual rate of 9.3% over five years, with the share price rising 11% annually. This alignment between earnings and valuation reflects strong investor sentiment and efficient capital allocation. Underlying operating profit has nearly doubled since 2019, climbing from £64.7 million to £122.5 million in 2023, while revenue and profit margins have remained resilient despite macroeconomic headwinds.

The company's dividend policy further amplifies its appeal. Over the past decade, Hill & Smith has consistently increased its semi-annual dividends, with the 2025 total payout of 49.0p per share marking a 14% increase from 2023. A payout ratio of 41.28% and a dividend cover of 2.5 times underlying earnings ensure sustainability, even in uncertain environments. Notably, the dividend yield currently stands at 2.9%, a premium to the industrials sector average of 1.26%.

Insider Buying: A Vote of Confidence

Recent insider transactions provide additional validation for investors. In 2024 and 2025, key insiders—including Executive Chairman Alan Giddins, CEO Rutger Helbing, and CFO Carol Chesney—have actively purchased shares. For instance, Giddins acquired £79,218.75 of shares in March 2025, while Helbing's £203,900 investment in September 2024 underscores top-tier management's conviction. The Hill & Smith Holdings PLC Employee Benefit Trust has also joined the buying trend, snapping up 2.47 million shares at £24.71 per share in March 2025.

Over the past 24 months, insider purchases totaled £626,269.43, with no insider sales reported. This pattern suggests a collective belief in the company's long-term trajectory, particularly as insiders continue to accumulate shares even during periods of market volatility. The most recent insider activity, including a £14.1 million purchase by the Employee Benefit Trust in April 2025, further reinforces this narrative.

Navigating Short-Term Challenges

While Hill & Smith's long-term fundamentals are strong, it's worth noting that the company underperformed in the most recent 12-month period, with a TSR of -7.9% against a 11% market gain. However, this dip is a temporary blip in an otherwise resilient track record. The company's ability to maintain dividend growth and operational momentum during this period—despite a challenging economic climate—demonstrates its adaptability.

For long-term investors, the recent dip in performance presents an opportunity to buy into a business with a proven ability to recover and outperform. The insider buying activity, coupled with a forward-looking dividend strategy, suggests that management views the current valuation as attractive.

Strategic Investment Rationale

Hill & Smith's combination of earnings growth, sustainable dividends, and insider confidence makes it a compelling addition to a diversified portfolio. The company's focus on industrial engineering—a sector with stable demand—provides a durable foundation for future growth. Analysts project continued earnings expansion, with a “Moderate Buy” consensus reflecting optimism about its long-term potential.

Investors should consider the following:
1. Dividend Reinvestment Potential: With a 2.9% yield and a history of consistent increases, Hill & Smith offers a reliable income stream that compounds over time.
2. Insider Alignment: The recent influx of insider capital aligns management's interests with shareholders, reducing the risk of short-term missteps.
3. Valuation Attractiveness: A price-to-earnings ratio of 14x (as of July 2025) is below the sector average, offering a margin of safety for patient investors.

Conclusion

Hill & Smith (LON:HILS) embodies the qualities of a long-term growth opportunity: earnings resilience, a sustainable dividend policy, and insider confidence. While short-term volatility is inevitable, the company's fundamentals and strategic execution position it for sustained outperformance. For investors seeking a blend of income and capital appreciation, Hill & Smith offers a compelling case—one that is backed by both financial metrics and the actions of those who know the business best.

Investment Advice: Consider initiating a position in Hill & Smith for long-term portfolios, with a focus on dividend reinvestment and a 5–7 year horizon. Monitor the company's upcoming interim dividend announcement in August 2025 for further validation of its trajectory.