AFR write-up Hills Hills has staged an outstanding recovery in...

AFR write-up
Hills

Hills has staged an outstanding recovery in the past 12 months, having divested or discontinued underperforming, low growth or non-core businesses, while aggressively positioning itself as a provider of audio and communications products to the health and aged care sector.
Management recently confirmed it was on track to achieve an underlying net profit in a range between $26 million and $28 million in 2013-14, also highlighting full-year contributions from health and technology acquisitions in 2014-15 are likely to underpin solid growth in that period.
It has been a quick and substantial transformation for Hills, with this year’s forecast profit representing a stark contrast to the statutory net loss after tax of $94.1 million in the 12 months to June 30, 2013. Having netted about $80 million from the sale of its two steel businesses, the company has the capacity to continue its growth by acquisition strategy. Analysts at Citi recently said: “Hills could spend a further $100 million on acquisitions, and its net debt to net debt plus equity would only approach 20 per cent.” The broker went on to highlight the company could invest $100 million at earnings before interest and tax multiples of about four, equivalent to similar purchases, and generate an incremental $25 million in EBIT, representing more than 50 per cent of its 2013-14 forecasts.

With this level of growth potential, the company appears outstanding value trading on a 2014-15 price-earnings multiple of about 13 relative to consensus forecasts for 2014-15.

Citi increased its 12-month price target from $2.10 to $2.35 after the company announced its most recent acquisition, Audio Products Group.