Interactive Investor

ii view: no safety for Halma despite record profit

16th June 2022 15:48

Keith Bowman from interactive investor

Shares for this FTSE 100 company are down around 40% year-to-date. We assess prospects.

Full-year results to 31 March

  • Revenue up 16% to £1.52 billion
  • Adjusted pre-tax profit up 14% to £316 million
  • Final dividend up 7% to 11.53p per share
  • Total dividend for the year up 7% to 18.88p per share
  • Net debt up 7% to £275 million

Chief executive Andrew Williams said: 
 
“Halma's Sustainable Growth Model enabled our companies to act with agility to address new market opportunities and to respond rapidly to the multiple operational and economic challenges they faced during the year. We are well positioned to make further progress in the full year and in the longer-term."

ii round-up:

Health and safety product maker Halma (LSE:HLMA) today reported a 19th consecutive year of record profit as it also announced the retirement of its chief executive of the last 18 years. 

Sales and profit growth across all of its sectors and major regions helped push revenue up 16% to more than £1.5 billion and adjusted pre-tax profit up 14% to £316 million. 

Halma shares fell by 5% in UK trading having fallen by just over a third year-to-date coming into this latest update. Shares for Oxford Instruments (LSE:OXIG) are down by around a quarter in 2022, while the FTSE All-World index is down by around a fifth year-to-date. 

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.

Accompanying management outlook comments pointed to a positive start to the new financial year, with a strong order book in place. Having joined in 2016, chief financial officer Marc Ronchetti is to become the FTSE 100 company’s new head. 

Having restarted bolt-on acquisitions following the pandemic, it made 13 acquisitions during the year for a total spend of £164 million. 

The total dividend for the year rose 7% to 18.88p per share, making for a 43rd consecutive year of dividend growth of 5% or more. 

ii view:

Founded over a hundred years ago, today Halma employs around 7,000 people across more than 20 countries. Safety products generate its biggest chunk of sales at around two-fifths, with the balance split almost 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. 

For investors, economic uncertainty, a change of leadership and rising costs for industry generally all offer reason for caution. Broad supply chain challenges following the pandemic also cannot be forgotten, while an estimated forward price/earnings (PE) ratio above the 10-year average also suggests that the shares are not obviously cheap. 

On the upside, quality and consistent growth do not come cheap, health and safety and medical products are likely to prove less economically sensitive than others, while the group’s dividend record is enviable given ongoing annual consecutive increases. In all, and while some consideration for outlook uncertainty appears sensible, Halma continues to demonstrate robust defensive qualities with its place in a diversified, long-term focused portfolio remaining justified. 

Positives: 

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

Negatives:

  • Economic and geopolitical outlook uncertainty
  • Valuation not obviously cheap

The average rating of stock market analysts:

Hold

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