Billington Holdings – A chance to build value?

The last day of May AGM Trading Update from Billington Holdings (LON:BILN) was very encouraging and identifies the group’s shares as being undervalued.

The £31m capitalised group is one of the UK’s leading structural steel and construction safety solutions specialists.

The Business

Based in Barnsley, the group was set up in 1989 and was previously known as Amco Corporation. It changed its name to Billington Holdings in 2008.

Employing nearly 400 people through its various subsidiaries, the group designs, manufactures, and installs structural steel works in the UK, Europe, and internationally.

The company designs, fabricates, and installs bespoke steel staircases, balustrade systems, and secondary steelwork.

It also provides safety solutions and barrier systems to the construction industry; protection and fall prevention systems; complex steel structures primarily for the construction and rail infrastructure markets; and site hoarding solutions.

In addition, the company engages in the property rental and management services.

It provides services to construction projects and operates in sectors, such as retail, data, commercial offices, education, healthcare, rail, and others.

Sales Split

On a Sales per Business basis of the 2021 revenues of £82.72m, the group’s Structural Steel Work projects were worth £73.96m, some 89.4% of turnover, while Safety Solutions were £8.76m, which was 10.6%.

All of the group’s business was earned in the UK.

The AGM Statement

Chairman Ian Lawson informed shareholders that:

“Following 2021, which was a year of partial recovery following the worst of the Covid-19 pandemic, 2022 has started positively for Billington. 

A number of large industrial contracts have been secured and the company has a significant pipeline of opportunities.

Despite the macroeconomic headwinds, particularly with regard to material availability, price volatility and inflationary pressures, the company is trading in line with market expectations. 

We have a robust business and are well placed to deliver improved results in 2022.  I remain confident in the group’s prospects for the medium and long term.”

The Equity

There are some 12.86m shares in issue.

The larger shareholders include the Gutenga Foundation (36.6%), Close Asset Management (12.9%), the Billington ESOP (6.76%), GPIM (5.06%), Ruffer (4.90%), IG Markets (2.92%), LGT Capital Partners AG (Investment Management) (2.20%), Kathryn Garnett (1.99%), Andrea Hardie (1.99%) and Hargreaves Lansdown Stockbrokers (1.90%).

Brokers View

Analysts John Cummins and Matthew Davis at the group’s brokers WH Ireland consider that the shares are worth 50% more than the current share price.

They estimate that the current year to end December will see group revenues rise from £82.7m to £90.3m, while its pre-tax profits will increase from just £0.18m to around £3.0m, taking earnings up from 8.1p to 19.3p per share, while its dividend could rise from 3p to a very well covered 7p per share.

The analysts also see the group reporting an end year £10.9m cash position (£9.38m).

Jumping forward the brokers go for £101.0m sales in 2023 then £109.0m in 2024, with £4.0m then £5.30m of profits, giving earnings of 25.2p then 32.7p per share and dividends of 10p then 13p per share.

Net cash positions for end-2023 and 2024 are estimated at £13.0m then £15.4m respectively.

My View

This group, which robustly weathered the hassles of the last couple of years, is another in my ‘basic’ business selections series.

Despite its size it is an important player within the overall UK infrastructure sector.

The group’s shares hit 443p in February 2020, just before the COVID-19 hassles imploded upon the group’s business.

It has since done well to recover and now its order books look very much healthier, and the profits are ready to roll in again.

And its cash on the balance sheet shows its strength – some £13m forecast against a market capitalisation of only £31m, with its shares at 217.50p each.

At that level they trade on 12.1 times current year and only 9.3 times prospective price-to-earnings ratios.

The current year yield is nearly 3%.

The group’s brokers have a ‘fair value’ for the shares of 350p each, offering an extremely attractive upside.

I see the shares gradually moving ahead over the next year.

I now set a new Target Price of 295p.

(Profile 02.04.19 @ 266p set a Target Price of 314.5p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)