Why I'd sell Sirius Minerals plc to buy this growth star

Today I am explaining why I'd be happy to sell Sirius Minerals(LSE: SXX) for Hill & Smith Holdings(LSE: HILS).

In the fast lane

Hill & Smith is a major player in the supply of safety barriers, bridges, signage and various other types of road furniture, and it has thrived in recent years thanks to robust investment in Britain's transport grid.

Just yesterday the West Midlands company advised that it achieved its best-ever trading performance in 2017 when revenues rose to an all-time high of £585.1m which was up 5% at constant currencies, and underlying profit before tax boomed to a record peak of £78.5m, a 12% improvement at stable exchange rates.

Hill & Smith applauded the impact of recent M&A activity as well as recent restructuring on last year's result, not to mention the benefits of its broad geographic footprint as the business is a major player in the UK, US and France.

The group is confident of making further heady progress in the current year too, despite the presence of some political and economic uncertainty in some of its regions, advising: "Prospects in our core US and UK infrastructure markets, as well as the other geographies in which we operate, continue to be positive for 2018 and beyond."

Earnings have risen by double-digit percentages in each of the past four years. And while profits growth is expected to cool in the medium term with a fractional rise forecast by City brokers for 2018 and a 4% increase is expected in 2019, I am confident that Hill & Smith can pick up the pace thereafter.

The firm sources almost nine-tenths of total profit from its British and North American marketplaces, and business is likely to keep rolling in at a brisk pace given rising the increasing investment (particularly in the US) to renew, repair and replace crumbling road networks.

Too risky?

While I reckon Hill & Smith is in great shape to deliver sustained earnings growth, and thus is worthy of a slightly-elevated forward P/E ratio of 17.8 times, the outlook is much less uncertain for Sirius Minerals.

This of course is hardly a newsflash, the mining industry is fraught with an endless catalogue of operational and market-based hazards, after all. But Sirius is particularly dangerous right now. There is no doubting the promise of its colossal POLY4-producing potash project on the North Yorkshire Moors, but as of today, and indeed the next few years, all investors can bank on is hope that the asset will prove to be the monster earnings generator that the company hopes.

In the meantime a lack of revenue streams is putting huge strain on the digger's balance sheet, and cash resources fell to £468.5m at the close of 2017 from £665.3m a year earlier. It's not outside the realms of possibility that further fundraising will be needed at some stage should timescales begin to slip.

Sirius Minerals has certainly been making impressive progress over the past couple of years to get the Woodsmith Mine and its related infrastructure in place. However, it still has an extremely long way to go before it pulls maiden material out of the ground in the early 2020s. All things considered, the London business carries still carries an uncomfortable amount of risk for me, I'm afraid.

Don't regret ignoring this growth tip

In light of these factors, I am more than happy to sit on my hands rather than splash the cash on Sirius. But while there remains a lot of uncertainty facing the potash play in the near-term and beyond, the investment case for the stock detailed in this special Fool report is much more compelling, in my opinion.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.