Why I Would Sell Elementis plc And Buy Hill & Smith Holdings plc

Elementis plc (LON: ELM) is at the receiving end of low oil prices and a strengthening dollar, but defense play Hill & Smith Holdings plc (LON: HILS) will benefit from flood repairs in North England.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Elementis (LSE: ELM) has a consensus price target of £265.41 by the analysts following it, but the company’s shares have recently been dealt heavy blows from both oil prices and the dollar, which is putting immense pressure on this target price. 

The largest US producer of chromic acid warned last week that a strong dollar will hurt its 2016 export potential, and that slowing oil prospecting in the US means it can sell less of its product, which is used in the oil extraction as well as in the personal care industry.

It won’t get any easier 

This situation won’t turn around any time soon, because oil is likely to remain a problem area, as is the US dollar. These are two very significant factors undermining the potential of this otherwise great company, which was originally part of the Harrisons & Crossfield commodities trading group.

It seems to me that Elementis will not recover any time soon, but might see marginal improvement in its share price, which hit a new 52-week low (£207.30) last Thursday (7th January), if the dollar happens to play in its favour. And that is a big if.

Massive export risks

A strengthening dollar is a more likely possibility in 2016, and with up to 40% of Elementis’ US output being earmarked for export, FX risks are considerable, as is testified by producers from Russia and Kazachstan already making inroads into Elementis’ markets.

In recent months, most analysts have revised downward their target price for the stock, as the company first warned of problems last June. It is easy to believe that these revisions reflect the problems already, but the market is telling us another story. At the current P/E of only around 9.8, the company might offer long-term potential; however, time is not on the side of Elementis — the longer these external factors impact the company, the less competitive it will ultimately become.

Hill & Smith Holdings

A better pick in my opinion is Hill & Smith Holdings (LSE: HILS). Recent developments in global stock markets combined with the floods in North England warrant a re-examination of this stock. The road building company, which manufactures and supplies infrastructure products for utilities and roads and offers galvanizing services, will benefit from the repair work that inevitably will emerge soon.

Flood repairs

Flood repairs are estimated to amount to £2.3 billion. Hill & Smith’s infrastructure products’ road segment is especially likely to benefit from this, as it is involved in supplying temporary and permanent safety products to customers involved in the construction or maintenance of national roads infrastructure.

UK to invest £80 billion in infrastructure 

This comes on top of the planned re-launch of the powerful Road Fund by Chancellor Osborne, who has said he will scrap green car subsidies and put this money into UK roads. Earlier this week, Reuters quoted analysts as saying that the amount of the UK’s total infrastructure investments up to 2020 is £80 billion.


Hill & Smith Holdings trades at a P/E of 29 and, even though this is high, it reflects a strong trading year in 2015 and sound fundamentals. There is little doubt to me that the company is on track to meet or surpass its full-year expectations. The industrials sector company has seen its share price rise by around 21% over the past year alone. I believe it is a solid defensive play as well as an excellent growth opportunity.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Angelique van Engelen owns shares in Elementis. The Motley Fool UK has recommended Elementis. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young black female footballer training on stadium pitch
Investing Articles

My JD Sports Fashion share price prediction for the second half of 2024

The JD Sports Fashion share price hasn't yet recovered from January’s slump. So will the retailer's stock bounce back in…

Read more »

Investing Articles

Up 47% in a week! Can the Capita share price continue to rocket?

The Capita share price has smashed the market in the last week, and Harvey Jones wonders whether it has the…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

What could the second half of 2024 have in store for the BAE Systems share price?

After a strong first six months of the year, what could be coming next for the BAE Systems share price?…

Read more »

Growth Shares

2 FTSE 100 stocks that are outperforming these MAG7 members

Jon Smith reveals some FTSE 100 stocks that offer him a viable alternative to the Magnificent 7, based on recent…

Read more »

Investing Articles

My Scottish Mortgage shares just paid me £14.88. It’s another step towards making a million

Harvey Jones has just received a measly dividend from his Scottish Mortgage shares, but he's got big, big plans for…

Read more »

Investing Articles

FTSE 100 shares: is Barclays a standout buy?

Barclays shares are among the FTSE 100's top performers and this Fool thinks they have further to go. He explains…

Read more »

Black woman using loudspeaker to be heard
Investing For Beginners

At 52-week highs, here’s what may be next for the Lloyds share price

Jon Smith notes the strong rally in the Lloyds share price in the recent past and explains why the good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

These UK shares are stinking out my ISA. Time to sell?

Paul Summers has been reviewing some of the worst-performing UK shares in his portfolio. Has the time finally come to…

Read more »