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Halma raises its dividend

The safety technology group is guiding that adjusted pre-tax profit will drop by 5-10 per cent this year
Halma raises its dividend

Safety equipment manufacturer Halma (HLMA) was relatively unperturbed by Covid-19 in the year to 31 March. The group estimates that the pandemic knocked just 1 per cent off of its full year revenue. Sales from continuing operations rose by 11 per cent – including 5 per cent organic growth at constant currencies – reaching a record £1.34bn.

IC TIP: Hold at 2,291p

Adjusted pre-tax profit jumped by 9 per cent to £267m, towards the lower end of the Halma’s guided £265m-270m range. This was aided by the larger infrastructure safety division where acquisitions helped boost profit by more than a fifth to £108m. But the process safety segment was weighed down by weakness in the US onshore oil and gas market which was accelerated towards the end of the year by the recent oil price collapse.

Covid-19 disruption intensified from the end of March, with revenue for the three months to 30 June coming in 4 per cent lower than a year earlier. The medical division saw sales decline as higher demand for products monitoring patients’ vital signs and oxygenation levels was more than offset by the reduction in elective surgical procedures and less urgent diagnostic tests.

In response to the crisis, the group has trimmed net £20m of costs in the first quarter of the current financial year and does not expect to complete any M&A deals in the first half. It made 10 purchases last year, although the total £243m spend on acquisitions and minority investments pushed up net debt (excluding lease liabilities) by almost three-quarters to £314m. This is equivalent to a manageable 1 times cash profits (Ebitda) and with £314m still undrawn from its revolving credit facility, Halma does not intend to use the government’s Covid corporate financing facility (CCFF).

The stable balance sheet has enabled the group to put investors’ minds at ease over the dividend. Increasing its final payout by 3.8 per cent, this marks the 41st consecutive year of dividend increases. As things currently stand, management is confident it can continue its progressive dividend policy.

Halma is guiding that adjusted pre-tax profit will fall by 5-10 per cent this year and will be more weighted towards the second half. Analyst consensus (as compiled by FactSet) places adjusted pre-tax profit at £262m in FY2021 and has EPS falling from 57.4p to 55.3p.  

HALMA (HLMA)    
ORD PRICE:2,291pMARKET VALUE:£ 8.7bn
TOUCH:2,290-2,292p12-MONTH HIGH:2,377pLOW: 1,660p
DIVIDEND YIELD:0.7%PE RATIO:47
NET ASSET VALUE:300p*NET DEBT:33%**
Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20160.8113628.812.81
20170.9615834.313.71
20181.0817240.714.68
20191.2120744.815.71
20201.3422448.716.50
% change+11+8+9+5
Ex-div:27 Aug   
Payment:01 Oct   
*Includes £1.12bn in intangible assets or 308p a share, **Includes £62m in lease liabilities