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Halma offers safety in numbers for investors

Company's revenue growth outstrips spending levels
November 18, 2021
  • Adjusted profit rises by 17 per cent
  • £120m spent on acquisitions

Safety equipment manufacturer Halma (HLMA) is on track to continue its more-than-40-year unbroken run of delivering a dividend increase of at least 5 per cent.

The company is proposing a 7 per cent uplift in its interim dividend after reporting 27 per cent growth in adjusted half-year profit to £155m as revenue rose by 19 per cent.

All three of the company’s main business segments – safety, environmental/analysis and medical – reported double-digit revenue growth and profit uplifts in excess of 20 per cent.

Halma’s return on sales was 21 per cent, which is at the top end of its long-term target range of 18-22 per cent. It benefited from lower variable costs as group companies that cut travel, exhibition and other discretionary spending last year only reintroduced it once evidence was in place of the revenue growth to support it, chief executive Andrew Williams said. A more typical rate of return is expected in the second half.

Halma is made up of a group of businesses employing 7,000 people in 20 countries. It completed 10 acquisitions in the first half, plus another after the period ended. Only three of these were entirely new businesses, while the other eight were bolt-on deals for existing operations, Williams said.

The company spent about £120m on acquisitions but offset half of this through the £64.8m sale of Texecom in August. It booked a profit on disposal of £34m. Net debt edged up to £280m, from £256m at the end of March.

Acquisitions have to fit with the company’s remit of building “a safer, cleaner and healthier future” in markets supported by trends such as population growth, urbanisation and digitalisation, as well as being capable of offering long periods of organic growth, high gross margins and strong cash generation. “We buy more of what we’ve got, if you like,” Williams said.

It then offers support either from sister companies sharing best practice or a central team of “growth enablers” offering expertise in areas such as international expansion, talent development, finance or digital innovation.

Despite the dividend increase, Halma's shares flatlined on results day, which is a reflection of investors' expectations and the company's forecast of a reversion to a normalised return on sales in the second half.

Over the past five years, Halma’s shares have outperformed the FTSE All-Share Index by an average rate of about 23 per cent. They now trade at 45 times earnings and 9 per cent above FactSet’s broker consensus target. Quality clearly doesn’t come cheap. Hold.

Last IC View, Hold at 2,682p, 10 June 2021

HALMA (HLMA)    
ORD PRICE:3,107pMARKET VALUE:£11.8bn
TOUCH:3,105--3,108p12-MONTH HIGH:3,189pLOW: 2,158p
DIVIDEND YIELD:0.6%PE RATIO:45
NET ASSET VALUE:336p *NET DEBT:22%
Half-year to 30 SeptTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202061896.320.46.87
202173716835.87.35
% change+19+74+75+7
Ex-div:23 Dec   
Payment:04 Feb   
* includes intangible assets of £1.19bn, or 313p a share