ii view: shares up as Halma flags rising sales

A suite of essential products and services and a diversity of geographical markets. Buy, sell, or hold?

Second-half trading update to 22 March

ii round-up:

Health and safety product maker Halma (LSE:HLMA) today pointed to good progress being made during its second half, with currency adjusted sales growth seen across all sectors and major geographic regions. 

Sales to Russia had ceased and represented less than 0.5% of overall group revenues, with full-year adjusted pre-tax profit to the end of March expected to match City expectations at around £306.5 million.

Halma shares rose by more than 1% in UK trading having fallen by around a fifth year-to-date. Shares for Oxford Instruments (LSE:OXIG) are down by a similar amount, while the FTSE All-World index is down by around 6% during 2022. 

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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.

The FTSE 100 company expects to deliver a further sequential improvement in revenue in the second half of the year, and substantial revenue growth over the year as a whole. Sales to Ukraine were summarised as insignificant.

A further three bolt-on acquisitions were made in the period, adding to the 10 made in the first half and bringing the accumulated overall cost to £166 million. A healthy pipeline of acquisitions continued to be seen.

Full-year results are scheduled for 16 June.

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, it reported a record profit for the 18th consecutive year, despite having forecast a profit fall at the onset of the Covid crisis. Founded over a hundred years ago, today it employs around 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. Its customers include utility companies, healthcare providers, commercial and public buildings, and energy and resource corporations. 

For investors, economic uncertainty, rising costs for industry generally and the dampening impact on sentiment of a war in Ukraine all cloud the outlook. Supply chain challenges also persist, while an estimated forward price/earnings (PE) ratio above the three- and 10-year averages also continues to suggest that the shares are not obviously cheap. 

However, while quality and consistent growth rarely come cheap, the shares are certainly better value than they were before the growth sector sell-off began at the beginning of 2022. For Halma, net debt fell by 11% over the first half and the dividend payment has increased for more than 25 years running. In all, and despite heightened outlook uncertainties, Halma continues to demonstrate robust defensive qualities, with its place in a diversified, long-term focused portfolio still looking justified. 

Positives: 

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

Negatives:

• Economic, geopolitical, and pandemic outlook uncertainty
• Valuation not obviously cheap

The average rating of stock market analysts:

Hold