ii view: forecast-beating Halma delivers record results

Growth across all sectors and regions and a 7% hike to the dividend payment. Buy, sell or hold?

First-half results to 30 September

• Revenue up 19% to £737 million
• Adjusted pre-tax profit up 27% to £155 million
• Interim dividend up 7% to 7.35p per share
• Net debt down 11% to £280 million

Guidance:

• Unchanged full-year forecasts

Chief executive Andrew Williams said:

“Our Sustainable Growth Model continues to drive our success, including its focus on global niche markets with long-term growth drivers. Our strong purpose and culture, our portfolio and geographic diversity, together with our agile business model enable us to perform well in varied market conditions and sustain growth and returns over the longer term."

ii round-up:

Health and safety product maker Halma (LSE:HLMA) today reported record revenue and profits as demand recovered from pandemic lockdowns and variable overhead costs such as those on IT returned at a slower pace than expected. 

Growth across all sectors and all major geographical regions was seen with management expectations for the full year left unchanged despite some supply chain and logistical cost pressures.  

Halma shares fell by around 2% in UK trading, leaving them up by around 25% year-to-date. That compares to gain of 12% for the UK’s broad FTSE All-Share index. 

Halma  says its 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, while the environmental business helps improve food, water, and air quality.

UK revenue growth of 55% to £136 million led the way during the half-year, followed by a gain of 25% for its Asian business to £125 million. Its biggest US region, generating just under two-fifths of overall sales, grew by 10% to £281 million. 

A gain of 27% in adjusted pre-tax profit to £155 million helped an increase of 7% in the interim dividend payment to 7.35p per share. Ten bolt-on acquisitions were made in the period at cost of £108 million. 

Management expects more typical rates of revenue growth in the second half of the year, with profit more in line with historic levels as variable overhead costs gradually return.

ii view:

Halma has developed a reputation for steady growth. During its last financial year to the end of March 2021, it reported a record profit for the 18th consecutive year, despite having forecast a profit fall at the onset of the Covid crisis. A constituent of the FTSE 100 index, it employs over 7,000 people across more than 20 countries. 

Safety products generate its biggest chunk of sales, followed by medical devices and finally environmental and analysis related products. Its customers include utility companies, healthcare providers, commercial and public buildings, and energy and resource corporations. 

For investors, and with Covid infections back on the rise in Europe, some pandemic uncertainty remains. Supply chain and logistical cost pressures have been flagged and an estimated forward price/earnings (PE) ratio comfortably above the three- and 10-year averages also continues to suggest that the shares are not obviously cheap. 

But quality and consistent growth do not come cheap. Net debt has been further reduced and the dividend increased for more than 25 years running. In all, and despite heightened economic uncertainty, Halma continues to demonstrate strong defensive qualities, with its place in a diversified, long-term focused portfolio still very much justified. The company is also a constituent in Wild's Winter Portfolios, which you can read about here.

Positives: 

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

Negatives:

• Currency headwinds being suffered
• Valuation not obviously cheap

The average rating of stock market analysts:

Hold