Interactive Investor

ii view: Halma shares bounce back after this news

24th March 2021 11:42

Keith Bowman from interactive investor

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In a world of safety first, do investors need to look much further than this FTSE 100 constituent?

Second-half trading update to 23 March

ii round-up:

Life-saving product maker Halma (LSE:HLMA) today raised its estimate for full-year profit as sales continued to improve following an early jolt in customer spending at the start of the global pandemic. 

Adjusted pre-tax profit for the year to the end of March is now expected to prove similar to that made last year, up from a prior expectation for a 5% fall. 

Halma shares rose by more than 2% in UK trading, leaving them up by just over a quarter over the last year, similar to the FTSE 350 index. 

Order intake is currently running ahead of revenues and ahead of the same period last year, helped by its focus on niche markets with long-term growth drivers, and the essential nature of many of its products and services, according to management.

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 people’s lives while the environmental business helps improve food, water, and air quality.

The safety business had benefited from the purchase of Sensit Technologies last year. An uptick in elective healthcare procedures from the start of the pandemic had aided the medical business, while the performance of the environmental division had stayed resilient despite a strong comparative last year. 

Geographically, sales grew across all regions, with further recovery in China pushing the biggest uplift for Asia Pacific. A healthy bolt-on acquisition pipeline exists, with both one business acquisition and one disposal made over the period. 

Full-year results are scheduled for 10 June. 

ii view:

Safety products generate the biggest chunk of Halma's sales, followed by medical devices and finally environmental and analysis related products. In geographical terms, the US accounts for its biggest revenue arena at nearly two-fifths of overall sales. Halma customers include utility companies, healthcare providers, commercial and public buildings, and energy and resource corporations. 

Its last full-year results to the end of March 2020 saw it reporting record revenue and profits for the 17th year running. Halma is a business which has developed a reputation for steady growth, but the current full year to the end of March 2021 looked like being the year that ended. Now, a gradual sales recovery from the initial freezing of corporate customer spending at the start of the pandemic is expected to generate a similar profit outcome to last year.

For investors, some ongoing Covid related caution looks sensible given its exposure to industries such as oil & gas. Despite challenges year-to-date, 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 with many other companies in a pandemic year having already or likely to report profit falls, quality such as Halma’s does not come cheap. In all, despite early year concerns, Halma has again demonstrated its strong defensive qualities, with its place in a diversified, long-term focused portfolio still justified. 

Positives: 

  • Diversity in both products and geographical sales 
  • Robust financial position

Negatives:

  • Pandemic remains ongoing
  • Valuation not obviously cheap

The average rating of stock market analysts:

Hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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