Hill & Smith (LON:HILS): A Multi-Bagger Play on Infrastructure and Renewables Growth
3min read Hill & Smith (LON:HILS), a UK-based global engineering solutions provider, has quietly positioned itself at the intersection of two of the 21st century’s most powerful trends: the digital transformation of critical infrastructure and the global energy transition. With its 2024 financial results and strategic roadmap signaling both operational discipline and ambitious growth targets, the company appears primed to deliver outsized returns for investors over the next decade. Let’s dissect why this £855 million revenue business could be a multi-bagger.
Ask Aime: "Will Hill & Smith's stock surge as it navigates the digital infrastructure and energy transition?"
Financial Foundation: Profitability, Cash, and Flexibility
Hill & Smith’s 2024 results reveal a company in command of its destiny. Revenue rose 3% to £855.1 million, with underlying operating profit surging 17% to £143.5 million. The operating margin expanded by 200 basis points to 16.8%, while return on invested capital (ROIC) hit 24.8%—a staggering figure that underscores management’s focus on capital efficiency. Cash conversion remains robust at 99%, and covenant leverage of just 0.3 times leaves ample room for acquisitions and reinvestment.
The company’s dividend policy also signals confidence. The proposed final dividend of 32.5p brings the total to 49.0p for 2024, a 14% increase. This reflects a balance between rewarding shareholders and retaining capital for growth.
Strategic Positioning: Betting on Structural Winners
Hill & Smith’s growth strategy is built around three pillars:
1. End Markets with High Barriers to Entry:
The company targets sectors like data centers, renewables, gigafactories, and electrical transmission infrastructure, which collectively account for 68% of revenue. These markets are underpinned by secular demand drivers. For example, Deloitte projects global data center power demand to jump from 29 GW in 2024 to 75 GW by 2030, while solar capacity in the U.S. is set to reach 128.2 GW by end-2024, surpassing hydropower and nuclear.
Ask Aime: Why is Hill & Smith poised for long-term growth?
Hill & Smith’s engineered solutions—such as corrosion-resistant galvanized steel for utility poles, transmission towers, and renewable energy systems—are mission-critical in these sectors. Recent acquisitions like Trident (U.S. electrical distribution) and Capital Steel (specialized steel fabrication) have expanded its geographic reach and cross-selling opportunities.
Geographic Diversification:
The U.S. is the engine of growth, contributing 76% of operating profit in 2024, driven by infrastructure investment and demand for solutions like composite utility poles. The reorganization into three divisions (U.S. Engineered Solutions, UK/India Engineered Solutions, and Galvanizing Services) aims to capitalize on regional dynamics. While the UK faces near-term headwinds due to public-sector budget constraints, India’s gigafactory and grid modernization plans offer long-term opportunities.M&A-Driven Scale:
Hill & Smith plans to spend £50–70 million annually on acquisitions, focusing on the U.S. and adjacent markets. This strategy has already borne fruit: the 2024 acquisitions contributed to £11 million of incremental revenue. With an upgraded ROIC target of 24.8% (previously 22%), management is prioritizing accretive deals over mere size growth.
Sustainability as a Competitive Advantage
The company’s ESG initiatives are not just compliance checkboxes. Its 2025 target to reduce its Lost Time Incident Rate (LTIR) to 0.275 (down from 0.33 in 2024) and transition U.S. operations to renewable energy align with investor and customer demands. Furthermore, its “treasure hunt” energy efficiency programs at five sites are expected to cut greenhouse gas emissions while improving margins—a rare win-win in sustainability efforts.
Risks and Challenges
- Geopolitical and Regulatory Uncertainty: The U.S. remains Hill & Smith’s largest market, but trade policies, permitting delays, and shifts in federal funding (e.g., IRA revisions under a new administration) could disrupt growth.
- UK Market Softness: Public-sector budget constraints may weigh on UK revenue in the short term.
- Commodity Price Volatility: Steel and energy costs could squeeze margins if input prices rise faster than pricing power.
Valuation and Catalysts for Growth
At current prices, Hill & Smith trades at a forward P/E of ~15x, which is reasonable given its ROIC and growth trajectory. Key catalysts include:
- 2025 Divisional Restructuring: The new structure, effective August 2025, should improve operational agility and accountability.
- Data Center and Renewables Adoption: As Deloitte notes, data centers’ 44 GW of projected 2030 power demand and solar’s modular scalability will drive demand for Hill & Smith’s products.
- M&A Pipeline: The company’s £50–70 million annual spend on acquisitions could unlock new revenue streams.
Conclusion: A Multi-Bagger in the Making
Hill & Smith’s combination of strong financials, strategic focus on high-growth markets, and disciplined capital allocation makes it a compelling multi-bagger candidate. With an addressable market growing at 7.5% CAGR for data center power solutions and renewables capacity surging to meet climate goals, the company is well-positioned to capitalize on secular trends.
The 24.8% ROIC, robust cash flow, and 14% dividend growth signal a management team that prioritizes both growth and shareholder returns. While risks like U.S. policy shifts exist, the company’s diversified end markets and geographic footprint mitigate downside. For investors with a 5–10 year horizon, Hill & Smith appears to have the DNA to deliver outsized returns in a world hungry for resilient infrastructure and clean energy.
Final Note: Investors should monitor Hill & Smith’s Q3 2025 results for progress on its U.S. divisional restructuring and M&A execution. A sustained ROIC above 25% and dividend growth north of 10% would further validate its multi-bagger potential.
