Hills is the iconic ‘steel bender’ whose flagship product (the Hills hoist) was initially situated in the domestic backyard, near the outside dunny. Perhaps its recent decades of ‘shareholder value’ destroying performances might suggest it was ideally located.
Indeed, a quick review of its past results would leave one underwhelmed, to say the least; but look a little deeper and there are green shoots in this turnaround story and an emerging ‘diamond in the dunny’.
FY19 has been a transformational year for this 70+ year company. It has taken its medicine by closing/selling unprofitable segments of its distribution division and re-positioning the remainder with likely productivity and cost savings of $3m to $5m per annum. Indeed, they believe they can get this loss making division back to profitability in FY20. But, the key to this company is their significant focus on that ‘diamond’, the exciting health division where they are market leaders in a rapidly growing technology field.
The recent AGM (8 November 2019) announced the sale of two segments of the Distribution division with no additional write-offs and the generation of around $10m in cash to reduce debt. Plus, it confirmed the continuation of robust growth occurring in the Health division to complement the 61% increase in EBIT in FY19.
With technology in over 1,000 Hospital and Aged Care sites, across Australia and New Zealand, Hills Health is the leading ‘technology innovation’ solutions provider in Australia and New Zealand. This, coupled with their recent exclusive distributorship agreement with the giant US based GetWellNetwork Inc , gives them a significant market dominating presence in the patient engagement platform that is reliably tipped to expand by 16% CAGR over the next five years.
In running the tape over FY20 projections one might assume the following:
- A very conservative 10% improvement in the Health division
- The Distribution division at break-even (again very conservative)
- Savings in interest because of the additional $10 million in cash
- A significant reduction in D&A because of the distribution segment sales/closures
- A pruning in corporate costs as the business is streamlined.
This business can throw a $6 million NPBT in FY20 and given its substantial tax losses, the tax man need not apply for a handout – approx 2.5c per share and improving into the future.
Conclusion
This former clothes hoist ‘steel bender’ has morphed into a streamlined HEALTH (Nurse call and patient engagement technology) and DISTRIBUTION company (security& IT technical services and products). Stripped of its damning past, Hills can be as exciting as the leading technology wunderkinds.
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