ii view: defensive Halma raises dividend again

Covid has had an impact on profit, but this is a great company with a strong track record of growth.

Full-year results to 31 March 2020

• Revenue up 11% to £1.34 billion
• Adjusted profit up 9% to £267 million
• Final dividend up 3.8% to 9.96p per share
• Total dividend for the year up 5% to 16.5p per share
• Net debt up 62% to £375 million

Guidance:

• First-quarter revenue down 4% compared to Q1 last year
• Expect adjusted full-year profit to be 5% to 10% lower

Chief executive Andrew Williams said:

“Halma delivered a record financial performance in the past year, and trading in the first quarter has been resilient despite the effects of the Covid-19 pandemic. This reflects our clear purpose and focused strategy, our flexible and agile organisation, and the resilient, long-term growth drivers in our chosen markets. We expect these strengths, combined with the quality of our people and our increasing investment in innovation and technology, to enable us to continue to create value for all of our key stakeholders in the years ahead.”

ii round-up:

Maker of safety devices such as flammable gas detectors Halma (LSE:HLMA), reported a 4% fall in first-quarter sales and flagged its expectations for a 5 to 10% fall in current full-year profit.

Cuts in discretionary spending by oil & gas customers under the Covid crisis, along with deferrals of elective surgery hitting its medical devices division, largely account for the downturn.

Halma shares fell by more than 5% in early UK trading having risen by around 8% year-to-date. Only two of its 53 facilities closed under Covid-19 lockdowns. More than 30 of its 43 subsidiaries deliver important safety, healthcare and environmental protection solutions, meaning most of its businesses have been classified as critical by various governments.

Profit and sales in its financial year to the end of March, just after the UK Covid-19 lockdown begun on the 23 March, reached record levels for the 17th consecutive year. All of its four sectors grew sales, with three out of the four also lifting adjusted operating profit.

Halma has customers in over 160 countries. It operates through four sectors: process safety, infrastructure safety, medical devices, and environmental & analysis. 

Its track record for adding to growth via business acquisitions also continued. It acquired 10 companies during the year, adding 5% to revenue and adjusted profit growth. Despite an ongoing healthy acquisition pipeline, it does not plan to complete any purchases in the current first-half given the Covid-19 backdrop and management caution. 

Like many other companies, Halma has temporally reduced executive salaries, raised cost savings and frozen staff hires under measures to conserve cash and battle coronavirus. Unlike many companies, it is not only continuing to pay a dividend, but retaining its progressive policy, raising the total full-year payment by 5% compared to the year before. 

Group net debt increased from £232 million to £375 million given both the inclusion of new accounting lease provisions and company acquisitions. 

First-half results are currently scheduled for the end of September. 

ii view:

Offering diversity in both product and geographical terms, and pursuing a strategy to grow both organically and by bolt-on acquisitions, Halma is a business which has developed a reputation for steady growth. 

These latest results have seen Halma reporting record revenue and profits for the 17th year running, and the group’s progressive dividend policy now runs to well over 20 years worth of consecutive increases. But a backdrop of Covid-19 hit customers is now expected to bring this impressive profit record to an end. 

Safety and healthcare are concerns whatever the economic backdrop, and Halma's brand of quality does not come cheap, with the shares normally priced for perfection. For investors, while a potential drop in profit of 10% over the current financial year is disappointing, it is still likely to compare well to many other companies and underlines Halma’s proven defensive qualities.

Positives: 

• Diversity in both products and geographical sales 
• A progressive dividend policy

Negatives:

• First-quarter sales down 4%
• Lofty valuation

The average rating of stock market analysts:

Strong hold