Join our community of smart investors

Safe pair of hands at Halma

Halma broke multiple records once again, despite tepid demand for oil and gas
June 12, 2015

Greater enforcement of safety regulations and robust demand for healthcare and clean food and water continue to buoy Halma (HLMA). Excluding currency shifts and acquisitions, sales rose 5 per cent at the group, sending adjusted operating profit up a tenth to £159m in the year to March.

IC TIP: Buy at 767p

This underlying growth propelled Halma to a 12th consecutive year of record revenue and profit. That was particularly striking given lukewarm demand from oil and gas clients. Management countered that headwind by making three acquisitions and expanding in faster-growing regions. Sales outside of the UK, US and mainland Europe accounted for 27 per cent of total revenue, up from 18 per cent in 2005. Management also ramped up research spending by 8 per cent as it banked on new products to win market share and break into new sectors.

The key to Halma's resilience remains the diversity of its operations, coupled with a laser-sharp focus on markets with structural growth drivers. Its medical segment - which makes devices for eye surgery and pumps and probes for diagnostic equipment suppliers - has benefited from ageing populations and the growth of preventable diseases. Its process and infrastructure segments, which make smoke detectors, elevator sensors and other safety devices, have profited from stricter health and safety regulations and greater enforcement. The environmental business, which makes devices that can test the quality of water, air and food, has prospered for similar reasons.

Underlying sales rose in all four of Halma's divisions but profit fell 12 per cent in the environmental business. That primarily reflected UK water companies deferring spending ahead of AMP6, the five-year industry investment programme that began in April 2015. Nonetheless, management has streamlined the segment to focus on growth markets and established a new outpost in China to address the rising quality and assurance needs of manufacturers there.

Broker N+1 Singer expects EPS of 32.1p a share in the current financial year (from 31.2p in full-year 2015).

HALMA (HLMA)
ORD PRICE:767pMARKET VALUE:£2.9bn
TOUCH:766-768p12-MONTH HIGH:786pLOW: 553p
DIVIDEND YIELD:1.6%PE RATIO:28
NET ASSET VALUE:145pNET DEBT:18%

Year to 28 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20115189819.29.10
201258011223.09.74
201361912024.810.43
201467713928.111.17
201572613427.511.96
% change+7-4-2+7

Ex-div: 16 Jul

Payment: 19 Aug

*Includes intangible assets of £545m, or 144p a share