Why the Hills Ltd share price has skyrocketed

Although the market itself has taken a breather in recent sessions, shares of Hills Ltd (ASX: HIL) have enjoyed a terrific run. In fact, they rose more than 32% last week and lifted as much as 22.1% on Friday alone (although the shares did peter-out towards the end of the session).

Source: Google Finance

Source: Google Finance

The rally appears to have been sparked by an update provided by the group on Tuesday. By getting ‘back to basics’, it seems Hills is beginning to gain some traction.

While the company had already told investors its EBITDA (earnings before interest, tax, depreciation and amortisation) was expected to be bigger in the second-half than in the first half of financial year 2016, it also said it had achieved considerable cost reductions so far in 2016.

Corporate costs since the beginning of the financial year have fallen around $4.7 million, while operations costs are down $5 million by realignment of the structure. That should result in improved margins through the business.

Before investors get too excited however, Hills does have a way to go to be able to prove itself. It may be wise to remain on the sidelines, for now, until there is more proof that the company can sustain its recent performance.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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