Interactive Investor

ii view: health & safety company Halma ups profit forecast

22nd September 2021 16:18

Keith Bowman from interactive investor

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An enviable record for both profit and dividend growth. We assess prospects. 

First-half trading update

  • Expects to report strong currency adjusted revenue and profit growth
  • Order intake has been ahead of both revenue this year and of order intake for the same period last year

Guidance:

  • Expects adjusted full-year pre-tax profit to be slightly ahead of its previous estimate

ii round-up:

Health and safety product maker Halma (LSE:HLMA) today flagged strong first-half revenue and profit growth due to a rebound in customer activity following last year’s Covid hit comparative.   

Progress was ahead of management expectations with a slower-than-expected return of variable overhead costs in the wake of easing pandemic restrictions helping to push profits higher. Full year adjusted pre-tax profit is now expected to be slightly ahead of its prior forecast.

Halma shares rose by more than 1% in UK trading, leaving them up by around 85% since pandemic induced market lows back in March 2020. That’s comfortably ahead of a near 42% gain for the FTSE 100 index and similar to the 81% gain for the mid-cap FTSE 250 index. 

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.

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.

Although led by its safety and environmental businesses, all sectors and major geographic regions delivered strong organic constant currency growth during the period. 

Having restarted bolt-on acquisitions following pandemic uncertainty, a healthy pipeline of opportunities now persists with ten acquisitions made in the financial year to date at cost of £108 million. 

First-half results to the end of September are scheduled for 18 November. 

ii view:

Halma is a business which has developed a reputation for steady growth. During its last financial year to the end of March 2021, Halma reported a record profit for the 18th consecutive year, despite having forecast a profit fall at the onset of 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. 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. 

For investors and given concerns for the spread of the Delta Covid variant, some ongoing pandemic caution looks sensible. 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 was down over the last financial year and the dividend has been increased for more than 25 consecutive 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 remaining justified. 

Positives: 

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

Negatives:

  • Currency headwinds being suffered
  • 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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