US And European Policy Delays And Rising Steel Costs Will Impair Margins

Key Takeaways

• Dependence on government infrastructure spending and exposure to volatile input costs threaten revenue growth and margin stability across key markets.
  
• Slow recovery in core segments, technological disruption, and rising ESG compliance costs risk undermining profitability and long-term market position.
  
• Strategic expansion in high-growth U.S. infrastructure and resilient end markets, plus disciplined capital allocation, strengthens margins, earnings, and positions Hill & Smith for sustainable long-term outperformance.

Catalysts

Manufactures and supplies infrastructure products in the United Kingdom, rest of Europe, North America, the Middle East, rest of Asia, and internationally.

• The company's future revenue growth is exposed to uncertainty due to heavy dependence on infrastructure spending by governments in the US, UK, and Europe, where budget constraints, policy delays, and prolonged bid-to-project conversion are already creating sluggish order intake and casting doubt on multi-year capital plans across key geographies.
  
• Despite recent expansion and high returns in higher-margin US businesses, Hill & Smith remains vulnerable to a margin squeeze from volatile steel and metal input costs, particularly if it cannot consistently pass those costs on to customers in currently weak UK, India, and cyclical end markets, ultimately threatening sustainable profitability and putting its rising group margin at risk.
  
• The ongoing underperformance and lack of recovery in core UK road and engineered solutions businesses signals that the company's diversification efforts may remain insufficient, with nearly half of UK and India revenues still tied to highly cyclical, lower-growth markets where infrastructure investment and order pipeline visibility are low, pressuring revenue stability and forecasting risk.
  
• Technological disruption in the construction and infrastructure sector looms as a longer-term competitive threat, as alternative building techniques and advanced engineered materials may accelerate commoditization or render Hill & Smith's legacy products obsolete, eroding market share and undermining the top-line over the coming decade.
  
• As decarbonization and ESG compliance costs mount, especially with tighter global emissions and environmental mandates, the company faces both higher operational expenses and potential restrictions in project eligibility, challenging its ability to sustain historic net margin levels and putting return on invested capital under structural downward pressure.

Hill & Smith Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hill & Smith compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hill & Smith's revenue will grow by 2.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 9.4% today to 11.4% in 3 years time.
• The bearish analysts expect earnings to reach £105.8 million (and earnings per share of £1.28) by about August 2028, up from £80.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.9x on those 2028 earnings, down from 21.4x today. This future PE is greater than the current PE for the GB Metals and Mining industry at 10.1x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

Hill & Smith Future Earnings Per Share Growth

Risks

• Substantial exposure to structurally growing U.S. infrastructure markets, with record order books and multiple-year federal and state funding, is likely to support long-term revenue growth and margin resilience, contradicting the belief in a sustained share price decline.
  
• Continued expansion and investments in high-margin U.S. Engineered Solutions and Galvanizing Services businesses are demonstrating rising operating margins and EPS, which are signs of earnings strength underpinning shareholder value.
  
• Strong cash generation and a robust balance sheet, paired with an active, disciplined M&A pipeline, have enabled Hill & Smith to fund organic growth, expand through bolt-on acquisitions, and announce a significant share buyback, all of which can support future EPS and share price accretion.
  
• Secular trends such as rising U.S. and European infrastructure spending, increased focus on grid modernization, renewables, data centers, and resilient supply chains align directly with Hill & Smith's growing participation in high-growth and resilient end markets, offering long-term revenue tailwinds.
  
• The company's focus on portfolio quality, divestment of noncore assets, and increasing exposure to resilient and high-growth categories (such as T&D, water, and data centers) have improved overall margins and positioned the group to capitalize on megatrends, increasing the likelihood of sustainable profit and return on invested capital expansion.

Valuation

• The assumed bearish price target for Hill & Smith is £18.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hill & Smith's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £28.0, and the most bearish reporting a price target of just £18.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £924.9 million, earnings will come to £105.8 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of £21.6, the bearish analyst price target of £18.0 is 20.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.