Halma: A blue-chip 'port in a storm'

Few outside the investment community have heard of this bull-run 10-bagger, but Graeme Evans finds a resilient business that delivers year in, year out.

FTSE 100-listed Halma demonstrated its "port in a storm" credentials today with yet another round of record revenues, profits and dividends.

The impressive half-year results should come as no great surprise to seasoned stockmarket followers, given that Halma has a record of doubling profit and revenue every five years. It's also the only London-listed company to have delivered dividend growth of 5% or more for 39 consecutive years.

Halma's success is built around a portfolio of some 40 companies operating worldwide, with technology focused on hazard detection, life protection, personal and public health improvement and environmental protection.

The products are not Halma branded but sit inside the systems of many world leading manufacturers. Step inside an elevator, for example, and there's a 50% chance they are fitted with Halma sensors that stop the doors closing if they detect an object.

Halma operates in stable, regulatory-driven end markets, with strong competitive positions in so many niche sectors that it is easy to see why the company is so attractive in the current climate.

Exposure to this reassuringly reliable growth performer comes at a premium for investors, however, with a price/earnings (PE) multiple recently as high as 29x. The shares peaked at a record 1,460p in September, only to fall back prior to the half-year results to leave Halma trading on 24.1x.

The stock, which joined the FTSE 100 index last December, returned to form following today's results, helped by Credit Suisse raising its target price to 1,620p from 1,530p previously.

Source: TradingView (*)      Past performance is not a guide to future performance

Even though shares trade at a 18% premium to their peer group, the bank said the recent falls presented an "interesting entry point opportunity".

They added: "We view the company's H1 performance as a clear demonstration of Halma's superior growth strategy, which we believe should be increasingly attractive in the current period of heightened demand outlook uncertainty."

All four of the company's divisions are trading well, while Halma's geographic diversity, financial strength and focus on global niche markets should mean it is well placed to cope with Brexit or China trade wars.

Approximately 9% of 2017/18 revenue came from direct sales between the UK and the EU, while 5% was from direct sales between the United States and China. 

Halma's portfolio structure means it can easily integrate new acquisitions as well as merge or sell businesses should the longer-term market potential change adversely.

US operations accounted for 37% of total revenues in today's results, having grown 19% in the half year. The UK arm overcame economic uncertainty to grow by 21%, making it marginally bigger than the Asia Pacific division. 

China's increased focus on safety, healthcare and cleaner air plays to many of Halma's strengths, helping Asia Pacific revenues rise by 5%.

• A reassuringly expensive FTSE 100 star
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Investec Securities raised its EPS forecasts by 2.5% today but cut its target price by 15p to 1,365p to reflect the de-rating of some peers. However, they added: "Halma's performance is outstanding by any standards, as it extends a very long growth record."

Overall, adjusted profits were 19% higher at £112.9 million in the half year to September 30, with earnings per share up 21% to 19.67p.

The performance was helped by a number of large, one-off contracts. CEO Andrew Williams, who has been at the helm for the last 13 years and with Halma for 24 years in total, expects a return to "more typical" rates of growth in the second half, with the figure likely to be in the region of 6% or 7%.

Shore Capital said Halma had room on its balance sheet for further M&A and investment, with the pipeline for future acquisitions remaining strong.

They added: "Halma is a great quality business but the valuation continues to look stretched given the current growth rates."

Based on Shore's forecasts, Halma trades on a 2019 PE multiple of 28.5x, with a dividend yield of 1.2%. Today, the interim pay-out was lifted in line with expectations by 7% to 6.11p.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.