ii view: resilient Halma doing better than expected

Covid has hurt, but is this safety and medical product maker still a safe play for investors?

First-half results to 30 September

• Revenue down 5% to £618 million
• Adjusted profit down 5% to £122 million
• Interim dividend up 5% to 6.87p per share
• Net debt up 1.5% to £315 million

Guidance:

• Expects adjusted full-year pre-tax profit around 5% below last year – previously 5-10% lower

Chief executive Andrew Williams said:

"Halma's proven strategic, financial and organisational model has contributed to a resilient performance in testing circumstances, with our financial performance improving as the first half progressed. Throughout the pandemic, we have maintained our focus on employee safety and wellbeing, while working hard to ensure the continued delivery of critical safety, health and environmental solutions for our customers. This was achieved thanks to the tremendous commitment and capability of our colleagues across the Group. Our rapid response to the many new challenges of recent months enabled Halma to not only weather the storm, but to be well positioned to meet the challenges and opportunities ahead.

“We have had a good start to the second half, with order intake ahead of revenue and up on the same period last year. Our improving trading performance, together with our strong cash position, will enable us to accelerate strategic investments in the second half of the year. “

ii round-up:

Life-saving product maker Halma (LSE:HLMA) works in more than 20 countries with major operations in the UK, Europe, the USA and Asia.

It operates across four sectors. Process and infrastructure safety offer technologies which both protect and save people’s lives, allow the safe movement of people in public areas, and protect both assets and infrastructure across the workplace. 

Its third category of product improves environmental protection and the security of life-critical resources, while its medical devices business makes items to enhance the quality of life for patients in healthcare.

Halma customers include utility companies, healthcare providers, commercial and public buildings, and energy and resource corporations. 

For a round-up of these latest results, please click here. 

ii view:

Safety products generate Halma's biggest chunk of sales, followed by medical devices and finally environmental and analysis related products. In geographical terms, the US accounts for nearly two-fifths of overall sales, Europe comes in second at around a fifth, while both the UK and Asia Pacific each account for around 16%. 

Its last full-year results to the end of March 2020 saw it report record revenue and profits for the 17th year running. It has also increased the dividend per share by 5% or more for the past 41 years.

Halma is a business which has developed a reputation for steady growth. But a backdrop of Covid-19 is now expected to bring this impressive profit record to an end, even if the current full-year profit drop is now expected to be around 5% instead of a previous possible 10%. 

For investors, some ongoing Covid-related caution looks sensible given challenges year-to-date, and an estimated forward price/earnings (PE) ratio comfortably above the three and 10-year averages. However, many other companies are reporting much bigger falls in profit, and quality such as Halma does not come cheap. A good start to the second half could also see the current expected profit fall turn into an eventual modest gain. In all, given what for now is an improving trend from its pandemic trading lows, Halma continues to justify its place in diversified and long-term focused portfolios.

Positives: 

• Diversity in both products and geographical sales 
• A progressive dividend policy

Negatives:

• First half revenue down 5%
• Valuation not obviously cheap

The average rating of stock market analysts:

Hold