Adelaide-based Hills Group has an estimated $230 million in acquisition firepower, investment analysts say.
Hills released its full year results yesterday and market reaction has been positive.
Shares in Hills jumped another 10 per cent yesterday closing at $1.58 – up from $1.30 at the close of last week.
Investment analysts at Commbank said in its report yesterday that the Hills 2013 result reported a “reasonable FY13 result (continuing EBIT $28.4m, down 22.4 per cent) that showed some positive signs in the second half”.
“Hills’ early cost restructuring work helped drive 2H13 EBIT growth on the previous corresponding period in its core Electronics & Communications division.
“However, the real surprise for us came from the top line, where the division grew 10.5 per cent in the past six months in a tough macro environment.
“Hills’ new management team has exceeded our expectations in its first year in terms of asset divestments and cost restructuring.
“(It)is now attempting to transform its business model from a low ‘return on equity’ holding vehicle competing in a small part of the distribution value chain to an integrated solutions-based company.
“No detail was provided around potential acquisition targets that could help Hills achieve its transformation. We estimate that Hills now has approximately $230m in acquisition firepower before it would need to raise fresh equity.”
Commbank revised its target price to $1.60 per share.
Analysts at broker CIMB said the Hills report included an unexpected positive from the electronics division.
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“A positive surprise from today’s result was the performance of the core electronics business, which has benefited from a range of internal measures (beyond just simply ‘cost out’).
“The fact that 2H sales showed 7 per cent growth on what is seasonally a stronger 1H suggests to us that the transformation under way will yield top line benefits as well.
“With a strong balance sheet, acquisitions will be a key focus and, given the recent track record, we believe management deserves the market’s backing.
“Beyond this, however, today’s briefing highlighted significant scope for further internal improvement in this business.”
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