ii view: health & safety firm Halma on track to grow profits

Full-year trading update

ii round-up:

Health and safety product maker Halma (LSE:HLMA) today outlined trading in line with City expectations, with progress in the second half led by demand at its environmental & analysis business.

Adjusted profit for the 12 months to the end of March are expected to be around £388 million, up from last year’s £361 million, driven by both organic sales growth and bolt-on acquisitions. 

Shares in the FTSE 100 company fell marginally in UK trading having come into this latest announcement up by a tenth over the last year. That’s better than a near 2% gain for the FTSE 100 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 lives while the environmental business helps improve food, water, and air quality.

Strong demand for photonics and optical analysis at its environmental business aided year-to-date performance, supported by good growth for safety products, although life sciences and healthcare subsectors proved more challenging. 

Geographically, strong demand across its two biggest regions, the US and mainland Europe, and accounting for two-thirds of overall group sales, sits alongside more modest demand in the UK, with demand in Asia improving in the second half versus the first. 

Eight bolt-on acquisitions at a cost of up to £299 million have been completed year-to-date, compared with seven the year before for a total of £397 million.  

Annual results to 31 March are scheduled to be announced on 13 June. 

ii view:

Started in 1894, Halma today employs over 8,000 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 and services. Halma customers include healthcare providers, utility companies, commercial and public buildings, and oil & gas and mining companies.  

For investors, Asia Pacific sales, accounting for around 14% of the group total, fell 6% during the first half, hindered by a more challenged Chinese economy. An uncertain economic outlook persists globally, costs for businesses generally remain elevated, while the impact which currency movements should not be ignored.  

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More favourably, a diversity of both products and geographical regions exists, and safety related products are arguably required whatever the economic backdrop. Bolt-on acquisitions continue to aid growth, while a dividend track record of more than 25 years of consecutive increases is enviable despite leaving the shares on only a modest forecast dividend yield of around 1%.  

In all, and despite ongoing risks, this well managed company looks to justify consideration for a place in diversified long-term focused portfolios. 

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