ii view: defensive Halma still making solid progress

Growth across all sectors and regions with exposure to defensive areas like healthcare and water utilities. Buy, sell, or hold?

Full-year trading update

ii round-up:

Health and safety product maker Halma (LSE:HLMA) today flagged its expectations for upcoming annual results that were in line with City forecasts and would be a record year for acquisitions. 

• Learn with ii: What is a Stocks and Shares ISA? | ISA Investment Ideas | Transfer a Stocks & Shares ISA

Helped by sales growth across all its sectors and regions, adjusted pre-tax profit for the full year to the end of March is expected to broadly match the consensus analyst forecast of £360 million, up from £316 million in 2021. Six acquisitions across all its divisions will make for record annual M&A investment of up to £264 million. 

The FTSE 100 company's share price rose marginally in UK trading having come into this latest announcement up by about 4% year-to-date. That compares to a fall of around 2% for the index itself.

Halma’s safety technologies protect and save lives, allowing the safe movement of people in public areas along with protecting both assets and infrastructure across the workplace. Its medical devices enhance lives, while the environmental business helps improve food, water, and air quality.

Acquisitions year-to-date have included IZI Medical Products, UK maker of linear heat detectors Thermocable, and ZoneGreen Limited, a UK provider of rail depot protection solutions. 

Geographically, both the US and Europe enjoyed strong currency adjusted sales growth prior to any acquisitions. Growth at its Asia Pacific region had been modest given a decline at its China business. 

Broker Investec reiterated its ‘buy’ rating following today's news, noting a “positive trading update that points to another set of record full-year results.”

Annual results are scheduled for 15 June. 

ii view:

Headquartered in Amersham, Buckinghamshire, Halma employs around 7,000 people across more than 20 countries. Safety products generate its biggest slug of sales at around two-fifths, with the balance split relatively evenly between medical devices and environmental and analysis related products. Its customers include utility companies, healthcare providers, commercial and public buildings, and energy and resource corporations. 

• Budget 2023: here’s how and why pension rules are changing
• 3 great European shares for your ISA in 2023
• 2023 Investment Outlook: stock tips, forecasts, predictions and tax changes

For investors, the tough economic backdrop, including rising interest rates and a cost-of-living crisis for consumers, cannot be ignored. Elevated costs generally for businesses warrant consideration, as does the impact which currency movements can cause. 

On the upside, diversity of both product and geographical region is a positive, ongoing bolt-on acquisitions continue to add aid growth, while a track record of more than 25 years of consecutive dividend increases is commendable.

Halma’s dividend is reliable but not particularly attractive on its own, and its share price has spent the past year trading sideways. The valuation, while still high, is only in line with the 10-year average, which may be enough to keep investors interested in this well run business with robust defensive qualities.

Positives: 

• Diversity in both products and geographical sales 
• Ongoing bolt-on acquisitions

Negatives:

• Economic and geopolitical outlook uncertainty
• Currency movements can hinder performance

The average rating of stock market analysts:

Hold