Hill International: A Play on Global Infrastructure Growth

| About: Hill International, (HIL)

Hill International Inc. (NYSE:HIL) may not be a household investment name, but the company is well known worldwide for its involvement with construction consulting and project management. The stock came public in 2004 and traded in a relatively tight range for the first two years.  But sometime in 2006 investors began taking note of the company’s rising sales and earnings numbers and the stock moved up substantially. 

Currently the shares trade just below $20.00 and the company is expected to earn $0.57 in 2008 and $0.79 in 2009.  If these estimates are correct, the growth rate over the next year will approach 40%.

One of the reasons the company may be less well known in the United States is that the majority of the growth in revenues is coming from regions other than North America.  The last quarter report showed significant growth from the MIddle East as well as North Africa.  While projects in Iraq have made up a large portion of revenues, those particular revenues are declining as a percent of the total as the company earns additional business in other geographic regions.

There are basically two business segments in which the company operates.  The Construction Claims segment provides claims consulting, litigation support, expert witness testimony as well as cost and damage assesment.  The second division is the project management segment which has a much higher expected growth rate.  As the revenue shift continues to lean toward the project management side, the gross margins will likely decline.  This is well disclosed, however, and should not catch investors off-guard as upcoming quarterly numbers are released.  In the second quarter the project management division saw 88% growth over last year while the project management segment experienced 33% growth.

Growth rates are a little difficult to calculate for Hill due to its aggressive acquisition strategy.  The company seeks out other firms that it can purchase and run more efficiently.  This has allowed Hill to expand its geographic footprint and capitalize on its management strength within the industry.  During the most recent conference call, management mentioned that it is currently in discussion with an additional 3 potential acquisition candidates.  These are categorized as “mid sized firms” and are likely to add to already expected revenue and earnings growth.  The key will be for management to structure each purchase in such a way that it is accretive to current shareholders very quickly.

The 12 month backlog of orders is quite robust with $606 million worth of projects waiting to be fulfilled.  This level is up 101% from this time last year and is a testament to the aggressive sales department that continues to land new contracts.  There were also additional contracts signed in July after the end of the quarter that should add to this backlog number.  Finally, several joint ventures have been initiated but no contracts from these ventures have been moved into the backlog number.

Hill International presents investors with a unique opportunity to invest in the global trends toward infrastructure improvement.  As more emerging nations find the need for updated roads, bridges, factories and storage facilities, Hill International should capitalize on this growth.  The stock is not cheap, which is a concern given the difficult market environment, but the growth has been reliable and should continue despite the dips in the United States economy.  A pullback in this name might be just the opportunity needed to get involved although currently the stock is right at all-time highs.  One should use caution with any name in this environment but HIL presents an interesting chance at reliable returns.


HIL Notes

FD: Author does not have a position in HIL.