Billington (#BILN) - Shareholders need a Steel Resolve

#BILN

Summary

Share Price of circa 340p , with Net Asset Value of 410p, backed by a strong order book, means that as an existing holder I'm currently HOLDING

I believe the markets have mis-priced BILN as a business, and will wait for stability or a bounce before looking to BUY

About Billington (LSE:BILN)

Billington operates in the construction sector & across 7 brands in total. These brands are split into 2 main divisions, Steel Structure & Safety Solutions and work as a sub-contractor, with their clients being main contractors for various projects across the UK.

Safety Solutions is around circa 10% of their business, working at a typically higher margin (see graph below of margins across the two segments over the previous 5 years).

 

Steel Structure

1.       Billington Structures - "Billington Structures is one of the UK's leading structural steelwork contractors with a highly experienced workforce capable of delivering projects from simple building frames to complex structures in excess of 10,000 tonnes. With two facilities in Barnsley and a further facility in Bristol and a heritage dating back over 75 years, the business is well recognised and respected in the industry with the capacity to process over 50,000 tonnes of steel per annum."

2.       Shafton Steel Services - "The Shafton facility operates in two distinct business areas. The first undertakes activities for Billington Structures. The second, Shafton Steel Services, offers a complete range of steel profiling services to many diverse external engineering and construction companies, allowing for the supply of value added, complementary products and services enhancing the comprehensive offering of the Group."

3.       Tubecon - "Tubecon is one of the UK's leading structural steel fabricators specialising in Architecturally Exposed Structural Steelwork (AESS), complex steel structures and bridges in a number of sectors including retail, commercial, public buildings, education, health, rail, sport and leisure, artworks, and infrastructure projects across the UK."

4.       Specialist Protective Coatings - "Specialist Protective Coatings was formed in March 2022 following the Company's acquisition out of administration of the trading assets of Orrmac Coatings Ltd. SPC is focused on surface preparation and the application of protective coatings for products across a wide variety of sectors including the power generation, water, infrastructure, commercial office and data centre sectors. In addition, the Group has continued to expand its dedicated on-site painting service to enable SPC to be a one-stop-shop for the painting requirements for the structural steel sector."

5.       Peter Marshall Steel Stairs - "Based in Leeds, Peter Marshall Steel Stairs is a specialist designer, fabricator and installer of bespoke steel staircases, balustrade systems and secondary steelwork for both Billington Structures projects and those contracts being undertaken by others. It has the capability to deliver stair structures for the largest construction projects and in 2024 supplied projects including commercial offices, power generation, data centres, distribution warehouses and leisure schemes."

Safety Solutions

6.       Easi-Edge - Easi-Edge is a market leading site safety solutions provider of temporary perimeter edge protection and fall prevention systems for hire within the construction industry.

7.       Hoard-it (& Brand-it) - Hoard-it designs, fabricates and manages a range of environmentally sustainable, re-usable, temporary hoarding solutions which are available on both a hire and sale basis, tailored to the requirements of its customers. The Hoard-it offering is complimented by Brand-It, providing an on-site graphics solution utilised on both Hoard-it's own products and increasingly on those installed by others as Brand-it expands its product offering.

 

FY24 Results

Summary & Outlook

FY24 Results Presentation: BILLINGTON HOLDINGS PLC - Full Year Results

Revenue	£113.1M
PBT	£10.8M
After Tax	£8.3M
Cash	£21.7M
EPS	66.2P

By Segment

(£'000)	Revenue	Operation Profit	Margin
Steel Structures	101,056	9,435	9.3%
Safety Solutions	12,628	2,390	18.9%

The shares are marked down significantly on this announcement, mainly due to the outlook statement. The 2025 expectations have been reduced, and they say that this will be 'significantly H2 weighting'

"In the current year, revenue and margin recognisable on contracts is anticipated to be significantly weighted towards H2 2025 with a number of large, profitable contracts, commencing in H1 and forecast to be substantially complete in H2. Therefore, in order to reflect current market conditions, we are now reducing our 2025 market expectations to revenues slightly ahead of 2024 and a profit before tax of £7.25 million." (FY24 Results)

Therefore, an almost 30% reduction in PBT from the current announcement. Things are tough out there at the moment. The chart below includes the FY25 estimate, and whilst clearly Billington has made progress over the previous 5 years, the market worries if market forces are now against the business and that profits have peaked for the business.

 

Steel Structure

Overall Summary

Revenue decreased 14.6% year on year principally as a result of an increased mix of complex, labour intensive contracts with a lower proportion of steel content relative to productive labour requirements. Structural Steel revenue decreased 16.9%.

This is a big fall in overall revenue to contend with, happening at the businesses main sector space.

The operating margin achieved within the Structural Steelwork entities decreased to 9.3%, from 10.5% in 2023, principally as a result of non-recurring raw material purchasing gains capitalised upon in 2023.

The business, predictably, is sensitive to the price of steel. In FY23 it benefitted from a higher steel price which I'll assume they hedged and built into their contracts with their main contractors. Indeed, from the FY24 results "Once the non-recurring impact of raw material price reductions experienced in 2023 are removed, the 2024 result is broadly consistent with that delivered in 2023."

Taken from the Consolidated income statement,

	FY24	FY23
Raw materials and consumables	(60,468)	(78,182)
Steel Structure Revenue	101,056	121,583
Difference	40,588	43,401

The difference between Raw Materials Cost & Revenue shows the main reason for the overall revenue reduction.

Business Segment

1.       Billington Structures and Shafton Steel Services. Billington Structures has a very healthy order book relating to the quantum of productive hours secured, at record levels, providing good visibility for the remainder of 2025 and confidence that Billington Structures will remain a positive contributor to the Group, although there is uncertainty over when certain projects will start, particularly due to lengthy planning processes and an overall shortage of work in the industry, which is leading to aggressive price competition. Further large items of capital equipment were purchased for Billington Structures in 2024 to further enhance the business' capacity and capability, including approximately £2.3 million invested in a large laser cutting machine and a cope drill machine.

2.       Tubecon - In April 2024 the Group recruited a number of specialist bridge fabricator employees from S H Structures when it was placed in administration. This has significantly increased the capacity and capability of Tubecon to provide a full service from concept to delivery of complex steel bridges. Tubecon has secured significant new business in 2024, for delivery in 2025, and has a healthy pipeline of further opportunities. The Group is undertaking a capital expenditure programme, expected to complete in mid 2025 and anticipated to cost circa £1.7 million, which includes a new workshop building at the Group's Shafton site, to ensure Tubecon has the capacity and capabilities to manufacture the most complex bridges. This investment will provide a credible new entrant to this market, one which we believe is able to address limitations with incumbent suppliers.

3.       Specialist Protective Coatings - Formed in March 2022 following the Company's acquisition out of administration of the trading assets of Orrmac Coatings Ltd. In 2024 the business introduced a night shift and operated at near full capacity, trading ahead of management's expectations and enabling the business to focus on performance enhancing work. SPC currently has a strong pipeline of work and is again expected to be operating at near maximum capacity during 2025. With the significant future opportunities for SPC the Group is looking at appropriate options to potentially increase capacity. Recently was certified to work in the Water sector.

4.       Peter Marshall Steel Stairs - Peter Marshall Steel Stairs had an extremely successful 2024, maintaining robust margins and operating at over capacity at times, utilising partner companies to assist in the successful delivery of its significant workload, alongside Billington Structures and for third parties. Additionally, the business has effectively increased its capacity during 2024 through moving certain operations to other Group sites, focusing on efficiency and the appropriate use of third party contractors to realise its full potential. Peter Marshall Steel Stairs currently has a strong order book providing good visibility for 2025 and into 2026, and is very well positioned for the future.

Safety Solutions

Overall Summary

Output related to Safety Solutions increased 9.9%, primarily related to additional site hoarding provided through Hoard-it.

The operating margin achieved within the Safety Solutions entities increased to 18.9% (2023: 13.8%) as a result of increased volumes of output in the Easi-Edge and Hoard-it businesses.

The Safety Solutions part of Billington has been a successful segment for the business, reporting y-o-y revenue growth, delivering £2.3M Op profit for FY24, alongside delivering a healthy margin to boot.

Business Segment

1.       Easi-Edge - Which in the FY report "continued as a significant contributor to Group profits, with an improved performance reflecting changes within the business and increased utilisation rates, including entrance into new market sectors. " which goes onto say "In 2025 Easi-Edge has experienced a reduction in large scale industrial and commercial project opportunities for its products, and as a result, is encountering competitors discounting their products to maintain product utilisation rates. In the Presentation, revenue was decreased Y-o-Y due to lack of office developments, which is a big market for this area.

2.       Hoard-it - The business operated at full capacity for much of the year and benefited from the Group's investment in stock levels in advance of anticipated demand, enabling rapid deployment of its solutions. The business is now established as one of the leading suppliers in its sector and is increasingly being seen as the supplier of choice, both in commercial and residential developments." but goes onto say. This strong performance is expected to continue in 2025, although contract delays and deferments have been experienced since the start of 2025. The Group is looking to secure additional premises for Hoard-it to accommodate future growth and enable the business to build on the exceptional performance delivered in 2024 when market conditions permit. In the presentation, FY25 started off slow, but enquiries are picking up, was mentioned.

Overall Finances

Balance Sheet

The business is well financed to absorb any downturns in the market in my opinion. Current Assets of £47M comfortably meet their current Liabilities of £20M and the trend has been positive Y-o-Y over the last 5 years.

 

Total Assets are £78M with Net Assets of £53M, including cash of £21.7M.

 

Net Asset Value equites to 410p a share. There is no goodwill on the Asset Balance Sheet. All the Net Assets are backed by Cash, Property or Equipment.

Dividend

A Dividend of 25p per share (£3.3M) has been declared. Covered by 2.65 earnings, offering a healthy yield of 7.35% (based on current share buy price of 340p per share) that appears well protected by a rock-solid balance sheet. Dividend policy is to payout 2.5 to 2.7 of earnings.

Cashflow

Capital Expenditure of £5M this year, and a similar amount next year, before dropping at the end of their 5 year investment cycle. This has the possibility for more earnings to drop straight into the businesses profit and increasing cash pile. Typical Capital Expenditure is between £1M to £2M.

 

Average Daily Cash of £21.9M through the year proves the sound nature of the cash value reported on the Balance Sheet.

Risks

In my opinion, there are several risks to the share that need to be highlighted and factored into any decision made.

1.       Price issues within Steel Structures are highlighted. Due to a shortage of works in the industry, planning delays, uncertainty within the wider economic sector for large scale developments. Within FY24, a principle risk is around mis-pricing works which can lock the business into unprofitable contracts. The business has invested in their people significantly  over the few years, and now carry the largest headcount in the businesses history. Do they reduce margins to maintain volumes, or keep margins but reduce volumes. Both have downsides.

2.       Main-Contractors (ie their customers) going into administration. This year a big main customer for Billington, ISG, went into administration. Thankfully, due to some luck and careful management, the risk was managed correctly. Taken from FY24 report; I am pleased to report that the Group has, post year end, received full settlement from its credit insurer in relation to ISG and the financial impact on Billington has been materially restricted to the excess on the Group's credit insurance policy. The Group insures its exposure with the maximum available cover, in a continuing difficult credit insurance market. This might increase premiums in future years.

3.       The business is reporting a slow-down in activity within their safety solutions business, which is typically a higher margin segment. My belief that a 30% reduction in Profit before Tax from FY24 must steam from a slowdown within this space.

4.       Delays in Projects - especially in local government such as roads, rail etc and with H2 weighting - this could be then pushed into YE26.

 

Opportunities

What I've labelled as a risk (their customers going into administration) is also, I believe, a strong opportunity for Billington. The ability to pick up complementary businesses from administration. Two major businesses acquired over the last few years;

1.       Acquiring companies from administration. Two Notable examples;

●        S H Structures was acquired from administration and placed within the groups structure. Under the groups brand of Tubecon, and entering into the specialist bridge market for the first time. Severfield, the biggest steel contractor in the UK, has had a torrid time of late due to their bridge department. This can really open up Billington the opportunity to gain market share within this space, but it'll also come with risks.

●        Orrmac Coatings Ltd was acquired in 2022 and placed in the new entity, Specialist Protective Coatings (SPC). Taken then from the FY24 report "In 2024 the business introduced a night shift and operated at near full capacity, trading ahead of management's expectations and enabling the business to focus on performance enhancing work."

2.       The defined benefit pension scheme is in surplus, to the tune of £1.4M. The business is currently obtaining specialist insurance to cover the pension fund, with any surplus cash returning to the business.

3.       Value-Engineering through their network of brands. The Shafton facility undertakes activities for Billington Structures. Having a better control of their supply chain - they can hopefully neglect the issues surrounding Severfield. This was asked on the Investor presentation and the management team were confident the issues around Severfield wouldn't happen with them, as they do the welding onto weathered steel.

4.       Opportunity to expand in Europe mentioned on the Investor presentation. They exited the market on Brexit. Developed a Food Processing Unit in Holland & tendering for a number of opportunities in Europe.

5.       Revenue aiming for the Bridge Market of £10M by YE2026.

6.       Share Buybacks was discussed and I think, given where the shareprice is trading below Net Assets - will be explored further.

Wider Market

Forecasts indicate that the consumption of structural steelwork within the UK, in 2024, declined 4.3% with an output of 855,000 tonnes, down from 893,000 tonnes in 2023. The Group remains a top tier structural steelwork fabricator in the UK and European markets and is increasingly seen as the contractor of choice for large, complex contracts in the UK.

Current market sector projections indicate that UK structural steelwork consumption will increase by 1.4% to 867,000 tonnes in 2025 and further increase 1.8% to 883,000 tonnes in 2026.

British Steel has been in the news recently, and will most likely be nationalised. Now with the government confirming they need to step in to protect the industry - there might be some factors including needing to use the company for any government based works, and that the government programmes will increase to give the sector some room to scale up.

Competitors

Alot of competitors for Billington are also customer for some of their brands.

Severfield (Largest in Sector)

Has Net-Debt of £55M and warned in March of a market slow-down (confirmed by Billington in their FY24 results. They also have issues in their bridge division; The bridge remedial works programme is progressing as expected and our view of testing and remedial costs and insurance recoveries is broadly unchanged, with more clarity expected in the coming weeks as discussions with affected clients, relevant industry authorities, insurers and other stakeholders progress.

William Hare

Lare, which also operates in the United Arab Emirates, India and Europe, employs over 2,000 staff worldwide with around half located in the UK. The uplift in work helped to generate a £5.8m pre-tax profit in the year to December 2023. The Bury headquartered firm ended the year with cash up just over third to £27m.