Modernised Steel Operations And Strong Order Book Will Drive Long Term Earnings Resilience

Catalysts

About Billington Holdings

Billington Holdings is a U.K. based structural steel and related services group supplying complex steelwork, specialist fabrication and protective solutions to high value construction and infrastructure markets.

What are the underlying business or industry changes driving this perspective?

• Order books for Billington Structures, Tubecon and other divisions are secured well into 2026 and partially into 2027 in resilient segments such as data centers, energy from waste, power and defense, supporting a visible rebound in revenue and earnings as deferred margins are recognized.
• Completion of the multi year capital investment and modernization program, including the new Tubecon facility and upgraded machinery at Shafton and Specialist Protective Coatings, should lift throughput, reduce unit costs and structurally improve net margins as volumes normalize.
• Government backed support for U.K. steelmaking and a stated preference for domestic steel in publicly funded projects, combined with stable steel input prices and Billington’s strong supplier relationships, provide a favorable procurement backdrop that can protect gross margins and earnings quality.
• Client led project delays have pushed high margin work rather than cancelled it, with a strong pipeline in structurally growing sectors like high tech food processing, film studios and sustainable energy, positioning the group for step up revenue growth and profit in 2026 and 2027.
• The transition of the CFO to COO alongside the 5P’s efficiency strategy, expansion of night shift capacity and focus on internal optimization projects should unlock operating leverage, supporting higher operating margins and stronger earnings from a largely fixed cost asset base.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Billington Holdings's revenue will grow by 17.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.3% today to 2.7% in 3 years time.
• Analysts expect earnings to reach £4.2 million (and earnings per share of £0.3) by about December 2028, down from £6.1 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.2x on those 2028 earnings, up from 7.3x today. This future PE is greater than the current PE for the GB Construction industry at 14.0x.
• Analysts expect the number of shares outstanding to grow by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.78%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A prolonged slump or further deterioration in U.K. and European construction activity, driven by weak economic confidence and government policy related project reviews and cancellations, could mean that today’s strong order book simply replaces lost future opportunities rather than supports growth, limiting long term revenue expansion.
• If client led delays and project reprogramming in key sectors such as data centers, energy from waste, defense and infrastructure persist beyond 2026, the continued deferral of high margin work could become structural rather than temporary, depressing net margins and pushing expected earnings growth further into the future.
• Intensifying price competition in a contracting structural steel and multistory construction market, combined with customers and competitors discounting to maintain utilization, may force Billington to accept lower margin contracts to keep its capacity filled, eroding contract profitability and constraining earnings.
• The multi year capital investment and 5P’s efficiency program may fail to deliver sufficient throughput and cost savings if market demand recovers later or more weakly than expected, leaving the group with a higher fixed cost base and underutilized assets that weigh on net margins and earnings.
• Execution risk around Tubecon, acquisitions and diversification into new sectors means that growth initiatives could absorb cash and management attention without achieving target returns, especially if infrastructure funding or specialist demand weakens again, which would dilute overall group returns and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of £3.8 for Billington Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be £155.6 million, earnings will come to £4.2 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of £3.4, the analyst price target of £3.8 is 10.5% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.