Jefferies starts Hill & Smith at ‘buy’

"Hill & Smith has an attractive spread of end markets spanning the general theme of 'infrastructure investment'," Jefferies said. The bank's organic revenue growth forecast of around 6% a year for FY21-FY24 is double the historic trend.

"Fuelling this growth is rising government investment on road networks in the UK (£27bn Road Investment Strategy 2) and US ($135bn within the proposed American Jobs Act).

"Our proprietary Road Investment Model indicates market growth of 4% per annum (FY20 - FY25F) which will support both the Road & Security and Galvanizing divisions."

Jefferies said the US utilities businesses also look well-placed to benefit from stimulus-driven upgrades to the US electricity grid and secular growth in demand for composites as a more environmentally friendly and more durable alternative to steel and wood.

"We see compelling rationale for using the strong Balance Sheet (FY21F Net Debt:EBITDA 1.2x) to build out each of the three divisions in the US," Jefferies said.

It noted that many of Hill & Smith's products and services in the US are immature with low market share but with either regulatory or environmental tailwinds.

"Furthermore, such a strategy should be accretive to group margins, with most US businesses delivering margins above their respective divisional average."