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We reiterate our Add recommendation and raise our target price by 5.6%, from 3,550p to 3,750p, as we incorporate the uplift in earnings.
Halma plc
Halma's H1 pre-close trading update guides to FY 26 organic revenue growth of 11-13% vs consensus of 8%. This was driven by strength in photonics, but we note that the wider business is also trading well. We increase our FY 26 and FY 27 FD EPS estimates by 5% and 3% to reflect the upgraded guidance. We increase our FY 26 net debt (inc. leases) estimate from £268m to £434m due to recent acquisitions, but this still leaves plenty of firepower. Buy, TP from 3340p to 3610p; P/E of 20x based on the targets is attractive given the strong track record.
Halma has released a positive update highlighting strong trading progress in H1 and has increased its FY growth guidance. We expect this to drive 4-5% consensus revenue and profit upgrades. Trading Good organic growth and returns despite a challenging economic and geopolitical environment. H1 cash conversion will be lower than normal reflecting incremental growth investment and working capital to support strong revenue growth. Order intake y-t-d is ahead of both revenue and the comparable period last year. In the period, Halma completed two acquisitions for a total consideration of c.£130m and one disposal for c.£10m. Outlook Based on y-t-d progress and expectations for the remainder of the year, management now expects low double digit % organic constant currency revenue growth for the full year (compared to previous guidance of upper single digit % growth) – this is driven by stronger than expected growth in its Photonics business and also current order intake across the Group. EBIT margin guidance is unchanged, at modestly above the middle of its target range (19-23%). Full year cash conversion is expected to return closer to the 90%KPI. The M&A pipeline is also healthy, and the balance sheet has headroom to facilitate further deals in FY26 (FY25 – £158m spent on 9 acquisitions). Investment case Halma has a proven business model that should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (c.£130m spent on 2 acquisitions in its fiscal FY26, following £158m on 9 acquisitions in FY25 and £299m on 8 acquisitions in FY24), highlighting its ability to use cash generation to expand addressable markets. Halma deserves a valuation premium, in our view.
Halma^ (HLMA, Hold at 3,338p) - Strong photonics drives +2% FY26F upgrade
Halma^ (HLMA, Hold at 3,260p) - £130m E&A acquisition
We raise our TP to 3,550p, based on applying a CY27E PE multiple of 27.2x to our conservative base case forecasts and incorporating a 5% M&A contribution to profits. With 9.7% upside, we reiterate our Add rating.
A strong H2 print - thanks in large part to EandA''s Photonics Halma''s H2 Sales came in 2.4% ahead of Company Consensus. Growth was strong across all regions, with double digits performance in the USA and Asia Pacific. Environmental and Analysis continues to deliver exceptionally strong growth, thanks to its Photonics business, with its exposure to one specific Hyperscaler. We estimate that it alone added 200bps to Group growth in 2025. Healthcare returned to sales growth after a difficult 12 months. Safety grew at 5.9%, a slight deceleration from H1. Adjusted H2 operating profit came in 4.4% ahead of Company Consensus. The Group''s H2 headline margin was 22.5%, 40bps ahead of Company Consensus. Only Safety delivered an EBITA performance light of our expectations. Outlook for strong organic sales growth, underpinned by Photonics Management confirms that Halma has made a ''positive start to 2026.'' The order intake and order book remain ahead of the same time last year. Halma now expects to deliver upper single digit percentage organic revenue growth in FY26e. This includes the benefit of further continued very strong growth in Environmental and Analysis'' Photonics business. New TP of 3,200p, driven by earnings revisions and roll forward of SOTP We have updated our model to reflect stronger growth prospects at EandA. As a result, our adjusted operating profit forecasts for FY''26/27e move up by 5% and 8% respectively. In addition, we roll forward our valuation methodology for our target price to utilise a new FY27e SOTP. As a result of our new forecasts and SOTP, our TP goes to 3,200p (from 2,800). Neutral reiterated.
We reiterate our Add recommendation and raise our TP from 3,000p to 3,280p, implying a FY26E PE of 32.7x, against the five-year average of 35x.
Halma released a strong set of FY 25 results which beat EPS consensus by 2%. Upgraded organic sales growth guidance (7-9%) was encouraging but is largely offset by a stronger FX headwind from strengthening GBP in our estimates, however we expect consensus adj. PBT to move up c.1-2%. Net debt (inc. leases) of £536m was better than our estimate of £559m, demonstrating strong working capital management. Absent any further acquisitions we expect net debt (inc. leases) to fall to £268m in FY 26.This gives Halma plenty of firepower for acquisitions and we remain confident that it will continue to execute on its pipeline. Halma continues to invest behind medium term growth while maintaining its high margins (and returns). Buy, TP from 3200p to 3340p; P/E of 19x based on the targets is attractive given the strong track record.
Halma has released strong FY25 results (modestly ahead of consensus) which delivered record profits (22nd consecutive record year), and also the 46th year of 5% or more dividend growth. Cash conversion was strong and there should be modest upward pressure to FY26 consensus Results summary H2’25 continued in a positive trajectory with organic growth supported by order intake which remains ahead of revenue y-t-d and y-o-y. Margins have expanded, driven by all divisions, mix, and operational improvements. Revenues grew 10.5% y-o-y (+9.4% at OCC) to £2,248m (consensus £2,220m / INVe £2,204m), driven by Safety and Environmental & Analysis. The adjusted EBIT margin expanded 80bps to 21.6%, giving adjusted EBIT of £486.3m (consensus £475.1m / INVe £464.5m) – a 14.7% increase (+12.6% OCC). EPS grew 14.4% to 94.2p (consensus 92.2p / INVe 89.6p) and the dividend is increased 7.0% to 23.1p (46th consecutive year of >5% growth). ROCE of 15.0% is 60bps lower y-o-y. Cash conversion of 112% is a highlight, and the balance sheet remains strong with net debt/EBITDA is 0.97x (FY24 1.35x). Outlook Order intake is ahead of revenue and up y-o-y. Management expects to deliver upper single-digit % organic cc revenue growth in FY26; this includes an expected benefit from further very strong growth in photonics within the Environmental & Analysis Sector. This adjusted EBIT margin is expected to be modestly above the middle of its target range of 19-23%. This implies low single-digit upward pressure to FY26 consensus. The M&A pipeline is also healthy, and the balance sheet has headroom to facilitate further deals in FY26 (FY25 – £158m spent on 9 acquisitions).
What happened? Halma has reported its FY25 numbers Revenue: H2 Sales came in 2.4% ahead of Company Consensus. Growth was strong across all regions, with double digits performance in the USA and Asia Pacific. Environmental and Analysis continues to deliver exceptionally strong growth, thanks to its Photonics business, with its exposure to one specific Hyperscaler. Healthcare returned to sales growth after a difficult 12 months. Safety grew at 5.9%, a slight deceleration from H1. Adjusted operating profit: H2 profit was 4.4% ahead of Company Consensus. Group H2 margin was 22.5%, 40bps ahead of Company Consensus. Only Safety delivered an EBITA performance light of our expectations. Outlook: Management confirms that Halma has made a ''positive start to 2026.'' The order intake and order book remain ahead of the same time last year. Halma now expects to deliver upper single digit percentage organic revenue growth in FY26e. This includes the benefit of further very strong growth in Photonics within Environmental and Analysis. Adjusted EBITA margin is expected to be modestly above the middle of the Group''s target range of 19-23%. BNPP Exane View: This is yet another impressive print from Halma. Photonics is the standout. We estimate that it alone is adding 200bps to Group growth at the moment and a strong contribution is expected in FY26e too. The outlook statement supports upward revisions to Consensus. We understand the FX is seen as a -4% headwind to FY26e, yet Consensus models little to nothing for this. Even so, the message on underlying sales growth and margins should still see the Street raising its numbers for this year by low single digits. We see the share outperforming today. / Source: Company, BNP Paribas Exane Estimates
We initiate on 7 mid and large cap UK Industrials, highlighting the key investment themes. Share prices have been volatile in the last 3 months, largely due to US tariff concerns, but most of our coverage has recovered strongly and is well placed to mitigate the potential impact. However, we remain vigilant of potential second order impacts on Industrial Production (IP). Earnings momentum has been mixed across our coverage, but Halma has been the most resilient. There have been some significant de-ratings over the last five years, particularly at Renishaw and Spirax. Our coverage is a group of high-quality companies that generate strong returns on capital, as demonstrated by our ROTIC analysis. Our top picks are IMI (BUY, TP 2260p), Smiths Group (BUY, TP 2560p) and Weir Group (BUY, TP 2740p).
HLMA IMI RSW ROR SMIN SPX WEIR
We upgrade our recommendation from Hold to Add and increase our target price from 2,500p to 3,000p, which is calculated using an FY26E PE of 30x (vs a five-year average of 35x).
Halma^ (HLMA, Hold at 2,640p) - Adj. margin guidance moderately ahead of guidance
Halma has released a brief but positive trading update highlighting continued progress. It is on track for another year of record profit, with modestly increased margin guidance – we expect a c.2% upgrade to consensus EBIT forecasts. Trading – continued progress H2’25 continued on a positive trajectory with organic growth supported by order intake which remains ahead of revenue y-t-d and y-o-y. Margins have expanded, driven by all divisions, mix, and operational improvements. Positive outlook Guidance for FY25 has increased from an EBIT margin of c.21% to now modestly above 21%. ‘Good organic revenue growth in FY25’ is unchanged (we suspect this means mid-single digit %), offsetting FX headwinds in its financial year. The M&A pipeline remains healthy, and the balance sheet has headroom to facilitate further deals in FY26. CFO succession As previously announced, Carole Cran was appointed CFO Designate on 8 January 2025 and will succeed Steve Gunning on 1 April 2025. Investment case Halma has a proven business model that should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (£158m on 9 acquisitions in its fiscal FY25 thus far, following £299m spent on 8 acquisitions in FY24), highlighting its ability to use cash generation to expand addressable markets. Halma deserves a valuation premium, in our view.
Halma has just released its H2''25 trading update; key takeaways include... Top line trends: Halma notes that group organic revenue growth has been supported by order intake. Orders remain ahead of both revenue in the YTD and the comparable period last year. EBIT margin outlook: Halma expects an adjusted EBIT margin modestly above 21% for FY''25 (Company consensus: 21.1%; BNPPE: 21.4%), compared to prior guidance of around 21%. Halma highlights that the margin has benefited from better than expected performance across all three sectors due to favourable product and portfolio mix and good operational delivery. Adjusted PBT outlook: With 2 weeks left until the end of FY''25, Halma will have good visibility on where PBT will come in for the year. Halma notes that they are on track for ''22nd consecutive year of record adjusted profit.'' Company consensus has adjusted PBT growing +14% YoY. Cash-conversion: Halma notes that cash conversion for FY''25 is expected to be ''strong.'' MandA: Completed 7 acquisitions in the YTD across the three sectors with GBP158m invested. Halma notes that it continues to have a ''healthy acquisition pipeline'' across all sectors. Share price performance/valuation: Halma has underperformed the wider Cap Goods sector by 10% YTD. In terms of valuation, Halma trades on c.21x 12m fwd Cons. EBIT (8% discount to L10Y average; 5% discount to its 2015-2019 average). Relative to Cap Goods, Halma trades at a 47% premium (57% avg. premium over the L10Y average; 67% avg. premium over the 2015-2019 average). Conference Call: No call BNPP Exane View: The message within the IMS implies a modest upgrade to FY''25 EBIT margin and in the absence of a material change to the message in respect of FX, that should drive a small Consensus upgrade. Just as importantly, we understand that Halma''s Healthcare businesses are now likely to post a small organic increase in sales in H2. While FY25e Healthcare may still contract, this move back into positive growth...
Halma^ (HLMA, Hold at 2,745p) - CFO to retire
We are encouraged by the progress made in the first half, demonstrating that the Halma model works in mixed markets. We reiterate our 2,500 TP and Hold rating.
Halma has released record results (again), c.3% ahead of consensus expectations, strong growth (+12% occ), margin expansion, high cash conversion, and FY25 guidance unchanged. H1 results summary Revenues grew by 13.0% y-o-y (+11.5% OCC) to £1,074.3m (consensus £1,050.4m) driven by Safety and Environmental & Analysis. The adjusted EBIT margin expanded 70bps to 20.7%, giving adjusted EBIT of £222.5m (consensus £215.6m) – a 17.2% increase (14.8% OCC). EPS grew 17.0% to 43.0p (consensus 41.8p), and the interim dividend is increased 7% to 9.0p (consensus 9.1p) providing a good platform for the 46th consecutive year of >5% dividend growth in FY25. ROCE of 14.3% is 110bps higher y-o-y. Cash conversion of 108% is a highlight and net debt of £646.7m (FY24 £653.2m) reflects growth capex and acquisition spend. The balance sheet remains strong with net debt/EBITDA of 1.27x (FY24 1.35x). In the period, Halma completed 5 acquisitions for a total consideration of £84m and a disposal for £7m (net of costs), with 4 in H2 so far for £74m. Outlook Guidance for FY25 is unchanged. Management expects good organic revenue growth in FY25 (we suspect this means mid-single digit %) an EBIT margin of c.21%. The M&A pipeline is also healthy, and the balance sheet has headroom to facilitate further deals.
Halma^ (HLMA, Hold at 2,502p) - Record HY25A – FY25F unchanged
Halma has reported H1''25 results; key takeaways include... Orders comment: Halma notes that order intake was ahead YoY and book-to-bill was 1.0x Revenue: Sales came in 2% ahead of VA Consensus expectations. Organically, sales grew by 11.5% in H1 (Consensus at 8.0%). Safety and EandA drove the beat, with organic sales growth in each division 360/710bps ahead of Consensus respectively. Strength in Safety was driven by strong growth in the Fire Sector while EandA strength was driven by strong growth in Photonics and some recovery in Spectroscopy (Biopharma seeing some recovery). Halma notes that revenue in Photonics was similar to the second half of last year and that it expects revenue to remain at similar level in H2''25. Healthcare missed marginally (50bps organic sales growth miss) although Halma comments that it is seeing early signs of modest improvement. Adjusted operating profit: 2% ahead of VA Cons expectations. Adjusted operating profit margin at 20.7% (+70bps YoY), came in line with Consensus expectations. Divisionally, Safety (+7.5% / +120 bps vs VA Cons) and EandA (+6% / +20bps vs VA Cons) recorded strong profitability but Healthcare was weak (-12% / -230 bps vs VA Consensus). Halma notes that Outlook: Halma reiterates its guidance for ''good'' organic constant currency revenue growth and an adjusted EBIT margin of c21%.Consensus models 6.5% organic sales growth and a margin of 21.1%. Conference call: 08:30 UKT, link to join here BNPP Exane View: This is a strong organic performance from Halma with Safety and EandA strongly ahead. Within EandA and looking to Photonics it is encouraging that Halma believes its high revenue base is sustainable into H2 and that Spectroscopy (margin rich) recovering; Spectroscopy will likely lead the next leg of growth within its Optical Analysis subsector. Overall, guidance was reiterated, but following the strong H1 performance (i.e 540bps of the 620bps of organic sales growth that Cons models for the year...
Halma^ (HLMA, Hold at 2,504p) - £42m medical acquisition
Halma''s trading update was light on detail.... Halma''s H1 trading update was light on detail - it simply noted that orders had grown, and book-to-bill was above 1.0x; organic revenue growth was described as ''good'' (Cons at 7.0%); margin was noted to have improved modestly YoY (Consensus +70bps). No colour was provided on individual sector trends. Guidance was reiterated on an organic basis, although a steeper FX headwind was guided to (no surprise there). All-in-all, there didn''t seem to be much in the trading statement that would lead Consensus to revise underlying assumptions. However near-term risk-reward is starting to screen as being more favourable... What appears interesting is that Consensus models the largest sequential revenue decline (H1''25 over H2''24) in EandA on record, even though Halma has reassured on the demand in Photonics being sustained in the near term and the fact that Spectroscopy is likely to have bottomed. We think Environmental and Analysis will deliver organic revenue growth of c25% in H1 (Cons at 15%). While Healthcare is likely to act as a drag - we expect modest declines YoY - it should not be enough to offset a beat that should come through in EandA. At the same time, as we look out to H2''25, the prospects of a recovery in Healthcare and Spectroscopy appear more likely. The pace of the recovery is hard to call of course, but Consensus estimates at least for now don''t seem to embed much of an H2 step up to reflect this. As such risk-reward into H1''25 results appears skewed to the upside (potential H1 profit beat accompanied by positive message regarding H2''25 development). Our TP moves up to 2650p from 2200p; Neutral reiterated We have updated our model to reflect stronger growth prospects in EandA, where risk-reward appears most strongly skewed to the upside. As a result, our adjusted operating profit forecasts for FY''25/26 move up by c6% and our TP up to 2,650p (from 2,200). Neutral reiterated.
The Halma model works and is resilient, even in mixed market conditions. We believe the premium is justified and reiterate our Hold recommendation and 2,500p TP.
Halma^ (HLMA, Hold at 2,568p) - FY25F unchanged
Halma has released a reassuring trading update highlighting good trading progress in H1 and unchanged FY guidance. This is despite current economic challenges, a higher interest rate environment, and FX headwinds. The ability for the group to absorb these headwinds and maintain FY guidance highlights, again, the strength of the Halma model. In-line current trading H1 trading is in-line with expectations. Good organic growth is expected in H1 with margins to be modestly higher y-o-y and a good cash performance. Order intake y-t-d is ahead of both revenue and the comparable period last year. In the period Halma completed 4 acquisitions for a total consideration of £85m, plus a disposal for £7m (net of costs). Positive outlook Guidance for FY25 is unchanged. Management expects good organic revenue growth in FY25 (we suspect this means mid-single digit %) and an EBIT margin of c.21%. The M&A pipeline is also healthy and the balance sheet has headroom to facilitate further deals. Investment case Halma has a proven business model that should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (£85m on 4 acquisitions in its fiscal FY25 thus far, following £299m spent on 8 acquisitions in FY24), highlighting its ability to use cash generation to expand addressable markets. Halma deserves a valuation premium, in our view, given its relentless delivery.
The Halma model continues to prove it can deliver and the premium is justified. We reiterate Hold, and raise our TP from 2,200p to 2,500p.
€42.5m acquisition of GFE Halma has acquired Portugal-based Global Fire Equipment (GFE), which designs and manufactures fire alarm and detection systems. This looks a classic Halma acquisition into a risk-averse, critical application, structural growth market. GFE is being acquired for Halma Group company Ampac. Our view & Initial calculations A deal multiple of just over 10x EBIT looks more than reasonable, in our view, and in-line with Halma’s typical 10-12x range. GFE generates a margin above the upper end of Halma’s 19-23% adjusted EBIT margin target range and should be c.0.5% earnings accretive in its first full year of ownership. Investment case Halma has a proven business model that should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (GFE is the second acquisition of its fiscal FY25 with a total consideration of c.£80m, following £299m spent on 8 acquisitions in FY24), highlighting its ability to use cash generation to expand addressable markets. Halma deserves a valuation premium, in our view, given its relentless delivery.
Halma^ (HLMA, Hold at 2,607p) - FY25F upgrades - sustainable growth
Halma has delivered positive FY24 results (modestly ahead of consensus), with record revenues (>£2bn) and profits (21st consecutive record year) and the 45th year of 5% or more divi growth. Cash conversion was strong and there should be modest upward pressure to FY25 consensus. Results summary Revenues grew by 10% y-o-y (+8% at OCC) to £2,034.1m (consensus £1,982m / INVe £1,964m), driven by all divisions, in particular Safety. The adjusted EBIT margin expanded 40bps to 20.8% with higher interest giving adjusted EBIT of £424.0m (consensus £416.3m / INVe £422.3m) – a 12% increase (+7% OCC). EPS grew 8% to 82.4p (consensus £80.1p / INVe 81.0p) and the dividend is increased 7% to 21.61p (proving a good platform for the 45th consecutive year of >5% divi growth in FY24). ROCE of 14.4% is 40bps lower y-o-y. Cash conversion of 103% is a highlight and the balance sheet remains strong with net debt/EBITDA of 1.35x. Outlook Order intake is ahead of revenue and up y-o-y. Management expects good organic revenue growth in FY25 (we suspect this means mid-single digit %) and an EBIT margin of c21% - this would imply low single-digit upward pressure to FY25 consensus. The M&A pipeline is also healthy, and the balance sheet has headroom to facilitate further deals. Halma investment case Halma has a proven business model that should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (£44m spent on one acquisition already in FY25, following £299m on 8 acquisitions in FY24), highlighting its ability to use cash generation to expand addressable markets. Halma deserves a valuation premium given its relentless delivery.
Strong growth in EandA offsets a softer development in Healthcare YTD orders were noted to have grown and on an absolute basis are ''close'' to revenue (i..e book-to-bill slightly below 1.0x). A similar message was provided in H1 implying that there have been no meaningful changes in order trends since. Group organic revenue growth was noted to have been good and supported by a ''strong'' development at EandA. Safety sales were noted to have grown at a ''good'' rate while Healthcare''s development was noted to reflect weaker second half market trends (we interpret that to mean down modestly). In all, we think Consensus Healthcare sales will need to be adjusted down slightly while EandA and Safety are revised higher to compensate. FY''23/24 guidance was confirmed which we think should reassure Halma confirmed its FY''23/24 adjusted PBT guidance. It continues to expect adjusted PBT that is in line with Consensus expectations (which before the IMS was GBP388.5m; range GBP376-394m). We think this is relatively encouraging given Halma''s guidance reflects a strong sequential margin recovery in EandA and continued progress in Safety. A reiteration thus confirms that the recovery in profitability is on track at both divisions. At the same time, it indicates that Healthcare''s margin likely remained robust; softer topline trends within this business was not enough to threaten Group profitability. Relative valuation is beginning to look more appealing; Neutral rating maintained We revise our H2 margin assumption at EandA higher as it sounds as if the steep H2 margin recovery is on track while incorporating the recently announced acquisition of Rover which drives our headline profit assumptions c3% higher (in line with Cons) and our TP to 2,200p (from 2,100p). While we view the shares as fairly valued, after a solid H2 Halma''s relative valuation may start to look appealing to some investors. For instance, on Consensus 12m fwd EV/EBIT it now trades at c10% discount to Spirax where...
Halma has released a reassuring trading update. Key highlights include: an acceleration of growth in H2, cash conversion improvement, and FY to be in-line with expectations. Current trading Halma continues to deliver growth despite all external headwinds. All sectors delivered organic growth (Environmental & Analysis plus Safety were strong with some headwinds in Healthcare as expected) and it achieved growth in all geographical regions (USA and Europe were strong with Asia improving). We assume 6-7% OCC FY24 growth from 5% achieved in H1. Acquisition momentum also continues with eight deals completed in FY24 (£299m vs. £397m in FY23). Cash conversion for the full year is expected to be ahead of our Key Performance Indicator (KPI) of 90%. Outlook Order intake is ahead y-o-y and close to revenue y-t-d. Management expects good organic revenue growth in H2’24 and to deliver FY24 adjusted PBT in-line with expectations (consensus range of £376.0m to £393.5m / INVe £393.3m). The M&A pipeline also remains healthy, and the balance sheet has headroom to facilitate further deals (INVe net debt/EBITDA of 1.3x). FY24E forecasts further underpinned: We leave our forecasts unchanged given trading y-t-d and in-line outlook commentary. Looking forward, we expect FY25E profit growth of c.8%. Investment case Halma has a proven business model that should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (£299m on 8 acquisitions in FY24 thus far, following £397m on 7 acquisitions in FY23), highlighting its ability to use cash generation to expand addressable markets. Halma deserves a valuation premium given its relentless delivery. Next catalyst: FY24 results on 13 June.
Initial Equity Trading Comments - 14 March 2024
HLMA OSB IGG GDWN PEBB ROO TRN VID IPF PCILF
Halma^ (HLMA, Hold at 2,265p) - FY24F update & in line
Initial Equity Trading Comments - 4 March 2024
HLMA TXP WHR BBOX WPP WEIR MATD DUKE
Halma^ (HLMA, Hold from Buy at 2,302p) - Healthcare acquisition
€85m acquisition Halma has acquired Rovers Medical Devices, which designs and manufactures sample collection devices used in the prevention and diagnostics of cervical cancer, for an initial consideration of €85m (c.£73m) on a cash basis, as a standalone company for its Healthcare sector. Our view This looks like a classic Halma acquisition. It has purchased a niche player with #1 (#2 in the US) market share in fast growth areas of the medical end markets. It is growing at high single-digit % levels and generates margins significantly above Halma’s target range (RoS 18-22%). Initial calculations We calculate a deal multiple of c.13x historic EBIT, a little higher than the upper end of its normal deal range of 12x but likely explained by the high margins. This could be c.0.5% EPS enhancing. Halma investment case Halma has a proven business model that should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (£272m on 7 acquisitions in FY24 thus far, following £397m on 7 acquisitions in FY23), highlighting its ability to use cash generation to expand addressable markets. Halma deserves a valuation premium given its relentless delivery.
Halma^ (HLMA, Buy at 2,053p) - Healthcare acquisition– earnings accretive
Our view. This is a classic Halma acquisition into a risk-averse, critical application, structural growth market. TeDan will be a standalone company within Halma’s Healthcare division, led by current management, and is adjacent to Halma Group companies IZI and NovaBone whose products are also used in the operating room. It generates c.65% of revenues from OEMs where it is often designed-in to its customers products, providing competitive moats and visibility. Halma can leverage TeDan’s products on its platform and expand its global market presence, currently c.85% USA revenues, to drive further growth (full acquisition/company details overleaf). Attractive multiple given asset quality. A deal multiple of just under 12x EBIT looks more than reasonable, in our view, and within Halma’s typical 10-12x range. TeDan is positioned to grow at high single-digit % levels p.a. and has a RoS above the upper end of Halma’s 18-22% target range. Earnings accretive, another forecast underpin. We leave our forecasts unchanged, but our initial calculations suggest that TeDan could be c.0.5% earnings accretive in FY25E. FY24E net debt/EBITDA moves to 1.2x, providing ample balance sheet flexibility for more accretive deals. Attractive investment case. Halma has a proven business model that should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (£199m on 6 acquisitions in FY24 thus far, following £397m on 7 acquisitions in FY23), highlighting its ability to use cash generation to expand addressable markets. Halma deserves a valuation premium given its relentless delivery.
Halma^ (HLMA, Buy at 1,966p) - Momentum going into H2
Halma^ (HLMA, Buy at 1,960p) - Record HY – FY24F unchanged
Record results (again!). Revenues grew by 9% y-o-y (+5% OCC) to £950.5m driven by all divisions and regions except AsiaPac. The adjusted EBIT margin was broadly flat at 20.0% (-30bps y-o-y) with higher interest costs contributing to a 90bps RoS contraction to 18.7% (as expected) giving adjusted PBT of £177.5m – a 3% increase (flat OCC). EPS grew 4% to 36.9p and the interim dividend is increased 7% to 8.41p (proving a good platform for the 45th consecutive year of >5% growth in FY24). Cash conversion of 96% is a highlight, while net debt of £618.8m (FY23 £596.7m) reflects investment in future growth, including increased R&D and acquisition spend. Positive outlook. Order intake is ahead y-o-y and close to revenue y-t-d. Management expects good organic revenue growth in H2’24 and to deliver FY24 adjusted PBT in-line with guidance. The M&A pipeline is also healthy and the balance sheet has headroom to facilitate further deals. FY24 forecasts further underpinned. We leave our forecasts unchanged given the H1 performance and outlook is in-line with our assumptions. We note that we are c.2% ahead of consensus adjusted PBT expectations. Attractive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (£126m on 5 acquisitions in FY24 thus far, following £397m on 7 acquisitions in FY23), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery.
Today's news and views, plus announcements from: HLMA, RKT, ESNT, IBST, BYIT, ECOR, NICL, & BELL.
Halma plc Ecora Resources PLC
Halma^ (HLMA, Buy at 1,837p) - Two bolt-on acquisitions
Acquisition details. Alicat, a Halma Group company in the E&A division, has acquired UK-based Alpha for £31m (+£5.5m potential earnout). Alpha designs and manufactures devices for high-precision measurement of trace moisture found in gases. IZI, a Halma Group company in the Healthcare division, has acquired Swedish-based AprioMed for SEK130m (c.£10m). AprioMed designs, manufactures and distributes medical devices used for bone biopsies. Both companies are classic Halma acquisitions geared to risk-averse, critical application, regulation-driven markets with revenue synergies. Attractive multiples. Alpha and AprioMed deal multiples of c.10x and c.13x EBIT respectively look good value, in our view, given both businesses are growing at high single-digit % levels p.a. and generate RoS above the upper end of Halma’s 18-22% target range. Earnings accretive. We leave our forecasts unchanged, but our initial calculations suggest that these acquisitions could be c.0.5% EPS accretive in FY25E. FY24E net debt/EBITDA should remain just below 1x, providing ample balance sheet flexibility for further accretive deals. Attractive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin momentum. Halma also enhances its positive organic growth with M&A (£127m on 5 acquisitions in FY24 thus far, following £397m on 7 acquisitions in FY23), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. H1 results on 16 November 2023.
Today's news and views, plus announcements from: HLMA, NXT, JD., SSPG, ESNT, LABS, DFS, CSN, TRR, & ALPH.
Halma plc Trident Royalties Plc
Halma^ (HLMA, Buy at 2,076p) - H1 update; FY24F unchanged
Initial Equity Trading Comments - 21 September 2023
HLMA RNWH DFS NXT JD/ DUKE VLS NXR SSPG DNLM ARSSF
High quality. Judges is one of the highest quality businesses in the industrials sector. It has a disciplined, decentralised model and is a leader in niche scientific instrument products/services with an attractive margin (EBIT >25%) and returns (ROTIC >20%) profile that is ahead of sector leaders like Halma and Spirax-Sarco. It has a strong growth track record with a 13yr CAGR of 7.5% in revenue and 12.5% in profit with a 23% dividend CAGR since listing. Exposed to structural growth. Judges is exposed to strong long-term growth drivers in higher education and process optimisation compounded with increasing demand-driven factors such as onshoring and net zero requirements. It is well diversified by geography and by scientific application so has historically been able to navigate specific headwinds at the group level. M&A optionality. We estimate Judges has c.£50m firepower to deploy on acquisitions given its balance sheet strength and the cash generative nature of the business. FY22 net debt of £52m reflected the Geotek acquisition and despite two more acquisitions and the Geotek earnout in H1’23, leverage is only 1.45x. We expect this to reduce to <1x in FY24E. Strong current trading. H1 results highlighted strong organic growth and high order intake momentum, de-risking FY expectations in our view. An impressive 23% divi increase signals confidence in growth and cash generation prospects. Valuation. Judges trades on a 23.5x FY24E PE and 14.6x EV/EBITDA. It has a FCF yield of nearly 5% and dividend yield of just over 1%. It is trading at a c.10% discount to its 5-year average. Near-term valuation is optically high, but this does not factor future acquisitions or its ability to sustain c.10% CAGR over the medium to long-term. With a well-respected management team and solid track record of accretive M&A, we believe a premium multiple is justified.
HLMA JDG OXIG RSW SXS SPX
Current trading. Good trading with order intake ahead y-o-y – Safety and E&A orders are tracking revenue while Healthcare is slower, as expected, given well-flagged OEM destocking. The Safety RoS is making progress and should expand y-o-y, along with Healthcare, while E&A is likely to contract due to mix. Reassuring outlook. Management expects good organic constant currency revenue growth in FY24 and a RoS of c.20% – consistent with the guidance given at its FY23 results in June. We take the cash comments as a positive and assume that it is on track to meet its FY24 c.90% cash conversion target. The M&A pipeline is also healthy. Unchanged forecasts. Unchanged FY guidance is positive, highlighting the strength of the Group’s ability to mitigate external headwinds. Suggested H1/H2 splits and H1 RoS expectations are in-line with our forecasts (FX is a potential small headwind). Note INVe H1’24E revenue of £936.8m (implying a 47.7% H1 weighting) and an 18.7% RoS giving adj. PBT of £175.2m (a 44.6% H1 weighting). Attractive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22, £397m on 7 acquisitions in FY23, and now c.£80m on 3 acquisitions in FY24 thus far), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma will release H1 results on 16 November 2023.
Initial Equity Trading Comments - 20 September 2023
HLMA UJO TSCO SBRY SUPR BOWL JDG BRSD DNLM W7L CBG RS1 DTTYF RIR
Halma^ (HLMA, Buy at 2,133p) - Small safety acquisition; limited earnings accretion
Acquisition details. Halma has acquired Australian-based Lazer Safe for AUD45m (c.£23m) as a standalone business within its Safety sector. Using its laser technology, it designs and manufactures solutions for industrial press brake applications to protect machine operators fabricating sheet metal. This is a classic Halma acquisition into a risk-averse, critical application, regulation-driven market. Halma can leverage Lazer Safe’s products on its platform and further expand its global market presence to drive further growth. Attractive multiple. A deal multiple of just under 10x EBIT looks more than reasonable, in our view, and below the low-end of Halma’s typical 10-12x range. Lazer Safe has been growing at high single-digit % levels p.a. and has a RoS at the upper end of Halma’s 18-22% target range. Further upside pressure to forecasts. We leave our forecasts unchanged, but our initial calculations suggest that Lazer Safe could be c.0.25% earnings accretive in FY24E. Our FY24E net debt/EBITDA remains below 1x including the deal cost, providing ample balance sheet flexibility for more accretive deals. Attractive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22, £397m on 7 acquisitions in FY23, and now c.£80m on 3 acquisitions in FY24), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma will release a trading update on 21 September 2023.
This was another solid set of numbers from Halma, in a year of management handover after Andrew Williams’ near 20-year tenure as CEO. The outlook remains positive, getting Marc Ronchetti, the new CEO, and Steve Gunning his new CFO, off to a good start. We increase our TP to 2,200p as we roll forward a year and reiterate our Hold recommendation.
Margin missed for the second consecutive half and was the focus of the market H2 sales were solid and came in c.6% ahead of Consensus expectations. Despite this, adjusted operating profit was in line with Cons. expectations as Group margin (20.5%) missed by 120bps. The in line profit performance appeared slightly more underwhelming when considering that central costs were cGBP4m lower than guided to at the time of the interims; adjusting for the delta here we calculate that underlying profit miss in H2 was closer to 2%. Safety was the largest drag, with its margin coming c.400bps below expectations due to supply chain disruptions that still plagued it (Halma was using last-gen electronic components that were aggressively priced higher by suppliers). That being said, Environmental Analysis'' margin also looked somewhat underwhelming (-150bp miss in H2) and generally operating leverage on the strong organic revenue growth was poor in H2 (-6% organic drop through in Safety; 17% in EandA, 40% in Healthcare). Halma''s outlook suggests that Consensus FY''24 numbers may need to edge lower Halma guides to good organic constant currency revenue growth in FY''24 - the CFO clarified that c.5-6% organic sales growth would be an appropriate rate to consider. Return on Sales is expected to increase to c20% (19.5% in 2023; Cons at 20.4%). In terms of RoS phasing, FY''24 is seen as a more typical year with H1 RoS seen in the ''low 19''s'' before ticking up in H2. Is there risk of margin disappointing again in the near term? We think Halma''s organic sales growth guidance is too cautious but at the same time are fearful of another near-term margin miss. Pricing seems too low for this inflationary environment (just 1-2% expected in FY''24E; c4% was delivered in FY''23) while the recovery in Safety''s margin might be slower or more H2 weighted than Cons. expects. Therefore, we see some risk around H1 numbers. We revise our numbers lower following FY''23 results; TP falls to...
Halma^ (HLMA, Buy at 2,276p) - Organic momentum continues
Halma^ (HLMA, Buy at 2,429p) - Record FY23A; FY24F unchanged
Record FY results (again!). Revenues grew by 21% (+10% OCC) with adjusted PBT increasing 14% (+3% OCC) to £361.3m (20th year of growth) driven by all divisions/regions. Return-on-Sales (RoS/PBT margin) contracted 120bps to 19.5% from a covid-induced high level. EPS grew 17% to 76.34p and the dividend is increased 7% to 20.20p (44th consecutive year of >5%). Cash conversion of 78% reflects growth and inventory contingency in H1 with conversion of 90% in H2, while net debt of £596.7m reflects acquisition spend. Positive outlook. A positive start to the year and a strong order book provides confidence. Management expects good organic constant currency revenue growth in FY24 and a RoS increase to c20%. The M&A pipeline is also healthy. Upgrading forecasts. We increase our FY24E revenues on a higher base and incorporate a 2% FX headwind in our assumptions. We also adjust for recent acquisitions. We also take guidance on slightly higher than we had previously assumed central costs and net interest. Overall, we upgrade our FY24E PBT by 1.2% and FY25E by 1.4% (details on page 6). Our FY24E net debt/EBITDA of 0.9x provides ample balance sheet flexibility for further accretive deals. Attractive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22, £397m on 7 acquisitions in FY23, and now £57m on 2 acquisitions in FY24), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma will release a trading update on 21 September 2023.
Today's news and views, plus announcements from: HLMA, IHG, IAG, RHIM, OTMP, IGR, NUM, & PCA.
Halma plc OnTheMarket Plc
Halma^ (HLMA, Buy at 2,388p) - Sewertronics acquisition
Initial Equity Trading Comments - 5 May 2023
HLMA XPF PCA ANP
Acquisition details. Halma has acquired Polish-based Sewertronics for €41m (c.£36m) as a standalone business within its Environmental & Analysis sector with potential for additional considerations of up to €18m (c.£16m). Its technology avoids digging up pipelines - safer for operators, less energy intensive, and with less environmental impact than water or steam curing methods. This is a classic Halma acquisition into a risk-averse, critical application, regulation-driven market. Halma can leverage Sewertronics products on its platform and expand its global presence to drive further growth. Attractive multiple. A deal multiple of c.10x EBIT looks more than reasonable, in our view, and at the low-end of Halma’s typical 10-12x range. Sewertronics should grow at c.10% p.a. and, we believe, has a RoS comfortably above the top end of Halma’s 18-22% target range. Further upside pressure to forecasts. We leave our forecasts unchanged, but our initial calculations suggest that Sewertronics could be c.0.5% earnings accretive in FY24E. Our FY23E net debt/EBITDA of 1.1x falls to 0.7x in FY24E providing ample balance sheet flexibility for more accretive deals. Attractive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22, £396m on 7 acquisitions in FY23, and now £36m on 1 acquisition in FY24), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma will release FY23 results on 15 June 2023.
FY23 has been an active year for Halma in terms of M&A and we are encouraged to see deals of a good size going through. The strategy continues to deliver, and the premium rating is well deserved in our view.
Acquisition details. Halma has acquired Cypriot-based FirePro for €150m (c.£132m) as a standalone business within its Safety sector and it will continue to be led by its current management team. This appears to be a classic Halma-style acquisition into risk-adverse, critical application, regulation-driven areas of the fire safety market. Halma can leverage FirePro’s products on its platform and help expand its global presence driving further growth opportunities. Attractive multiple. A deal multiple of c.12x EBIT looks more than reasonable, in our view, and within Halma’s traditional range of 10-12x. FirePro should grow at c10% pa and is a high margin business (more than double Halma’s target range of 18-22%). FirePro is a sizable acquisition which has attractive safety, environmental and regulation driven demand characteristics. Further upside pressure to forecasts. We leave our forecasts unchanged, but our initial calculations suggest that FirePro could be c.1.5% earnings accretive in FY24E. FY23E net debt/EBITDA will lift to c.1.0x given the timing of the transaction, but FirePro’s profit contribution will materialise through FY24 and the balance sheet still has plenty of flexibility for more accretive deals. Investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22 and £396m on 7 acquisitions in FY23), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma will release FY23 results on 15 June 2023.
Today's news and views, plus announcements from: HLMA, RTO, CURY, INVP, DFS, GYM, ANIC, ROO, & TKO.
It was a characteristically solid update from Halma, reflecting another good year of progress. We note acquisition spend at record levels, plus a robust order intake, underpinning the outlook.
Strong trading. Halma continues to deliver growth despite all external headwinds. Its ability to do this is a significant achievement and highlights the resilience and flexibility of its business model. All sectors delivered good organic growth and it achieved growth in all geographical regions – including Asia Pacific, despite lower growth in China (6-7% of Group sales) as expected. Acquisition momentum also continues with six deals completed in FY23. Cash conversion is a highlight – we expect c100% in H2 vs. 63% in H1. Positive outlook. The order book remains strong with order intake in-line with revenues, normalising as expected post the supply chain constraints et al. Positive underlying demand remains, providing confidence in our outer-year forecasts, underpinned by incremental acquisition contribution. Unchanged forecasts, reassuringly. Halma is on track to meet FY23E profit expectations. Seasonality is returning to normal historical profit levels (H1/H2, 48/52%) and we expect this to be the case in FY24E. This is reassuring compared to the listed peer-group, which are generally guiding to a greater H2 weighting than normal. Investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22 and £264m on 6 acquisitions in FY23), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma will release FY23 results on 15 June 2023.
Acquisition details. Halma has acquired UK-based Thermocable for £22m for its fire detection company, Apollo, within its Safety sector. This appears to be a classic Halma-style acquisition into risk-adverse, critical application, regulation-driven areas of the commercial and industrial markets. Apollo can leverage Thermocable’s customer base while Thermocable should capture growth opportunities on the Halma platform. Attractive multiple. A deal multiple of c.10x EBIT looks more than reasonable, in our view, and within Halma’s traditional range of 10-12x. Thermocable is a higher single-digit percentage growth and high margin business (margins “substantially above” the upper end of Halma’s target range of 18-22%). Thermocable looks like a great addition to the portfolio and should be accretive and complementary to Halma. Further upside pressure to forecasts. Given the size of this transaction, we leave our forecasts unchanged, but our initial calculations suggest that it could be c0.3% earnings accretive in FY24E. We also calculate that FY23E net debt/EBITDA would remain at 0.7x. Investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22 and c£260m on 4 acquisitions in FY23 to-date), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma will release a trading update on 16 March 2023.
The agility of the businesses and the strength of the balance sheet, which supports further M&A, mean the premium rating is deserved, in our view. That said, it fairly reflects the outlook, and with the change in management team also underway, we maintain our Hold recommendation.
Record H1 results (again!). Revenues grew by 18.8% (+9.5% organic, +3.4% acquisitions, -2.4% disposals, +8.3% FX) with adjusted PBT increasing 10.9% (+1.9% organic, +1.2% acquisitions, -1.4% disposals, +9.2% FX). Good organic growth was recorded in all sectors and regions. RoS (PBT margin) contracted 140bps to 19.6%, as expected, reflecting growth investment. Cash conversion of 63% also reflects this investment (>80% underlying – in-line with typical H1 levels) and should return towards the 90% KPI for the full year. The balance sheet remains strong with net debt/EBITDA at 1.2x (FY23E <1.0x). Dividend growth continues, with an increase of 7%. Positive outlook. Order intake is running ahead of revenue, and a high comparator, with underlying demand drivers strong across all sectors giving an exceptionally strong order book. Management comments that the current environment presents both challenges and opportunities and it remains on track to make further progress in H2. The acquisition pipeline remains healthy and we expect more transactions to follow. Upgrading forecasts. We upgrade our adjusted PBT forecasts by c3% to reflect strong H1 trading and outlook commentary. We believe our forecasts are still set conservatively and current FX rates provide further potential upside. Investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and sustainability-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22 and c£238m on 3 acquisitions in FY23 to-date), highlighting its ability to use cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery.
Acquisition details. Halma has acquired Germany-based WEETECH for €57.5m (c.£50m) and it will be a standalone company within its Safety sector. This appears to be a classic Halma-style acquisition into a new area within safety and nicely geared to demographic trends and structural EV growth (c1/3 revenues from EV). WEETECH generates over half of its revenues in Europe and less than 20% in the US, providing strong international growth opportunities on the Halma platform. A deal multiple of c.11x EBIT looks more than reasonable, in our view, and within Halma’s traditional range of 10-12x. WEETECH is a high single-digit percentage growth and high margin business which will be accretive and complementary to Halma. Further upside pressure to forecasts. Given the size of this transaction, we leave our forecasts unchanged, but our initial calculations suggest that it could be c0.5% earnings accretive in FY24E. We also calculate that FY23E net debt/EBITDA would only increase by 0.1x to 0.8x (full details overleaf). Positive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22 and now c£225m on 3 acquisitions in FY23 to-date), highlighting the Group’s ability to use its strong cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma’s H1’23 results are scheduled for 17 November 2022.
Acquisition details. Halma has acquired US-based IZI Medical Products for US$153.5m (c£138m) and it will be a standalone company with its Healthcare sector. This appears to be a classic Halma style acquisition into high growth markets with structural demand drivers, such as enhanced cancer related diagnostics and surgery. IZI generates c70% of its revenues in the US, providing strong international growth opportunities on the Halma platform. A deal multiple of c13.5x EBIT looks reasonable for IZI, in our view, but above Halma’s traditional range of 9-12x. We believe that this justifiable given that IZI is a high growth, high margin business and is exactly the type of business that Halma should be buying. It is also Halma’s largest acquisition. Upgrading forecasts, still FX upside. We upgrade our FY23E revenue forecast by 0.9%, operating profit by 1.2% and EPS by 0.3%, and FY24E by 1.9%, 2.7% and 1.0% respectively. Our FY23E net debt forecast increases to £306.9m, giving a net debt/EBITDA ratio of 0.7x (full details overleaf). We also calculate a c5% FY23E revenue and profit forecast upgrade on current FX rates extrapolated to its year-end in March 2023. Positive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22 and now c£175m on 2 acquisitions in FY23 to-date), highlighting the Group’s ability to use its strong cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma’s H1’23 results are scheduled for 17 November 2022
Today's news and views, plus announcements from: AZN, GSK, HLMA, LXI, PTEC, PZC, ADB, COM, JDG, & Streaks Gaming.
Strong current trading. trading to date has shown good progress, in line with management expectations, despite obvious external operational headwinds. All sectors have delivered good organic growth and the company achieved growth in all geographical regions. Underlying cash generation is strong despite selective investment in working capital to support growth. Confident outlook. Demand remains strong with order intake strongly ahead of revenues. External challenges remain; however, management reiterates its FY23 guidance (INVe +12% revenue y-o-y growth and a 20.5% RoS). We believe this is extremely reassuring as the Group continues to deliver in abnormal conditions. We also note management comments of a “promising” acquisition pipeline across all of its three sectors - this is a key indication that more acquisitions may feature through the year. FY forecasts underpinned. Year-to-date trading confirms that Halma is on track to meet FY23 expectations. It is seasonality that is returning to normal historical levels and there is upward pressure to forecasts, driven by FX and potential acquisitions (full INVe forecast details overleaf). Positive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (£164m on 13 acquisitions in FY22 and £36m in FY23), highlighting the Group’s ability to use its strong cash generation to expand addressable markets. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma’s H1’23 results are scheduled for 17 November 2022.
Andrew Williams to step down following a stellar 18-year track record The biggest news to emerge from Halma''s FY''22 results was the announcement of Andrew Williams'' retirement at the end of FY''23. Marc Ronchetti, CFO, will step up to lead the Group. Andrew Williams'' track record speaks for itself. Under his tenure Halma delivered an average of ~6% organic sales growth p.a (vs. the Cap Goods Sector at ~3%), and 3% sales growth via acquisitions, meaning that Halma''s sales will be 5x larger and group profit 7x larger than when Andrew joined. It is Andrew''s consistent delivery of strong results that may leave some investors nervous around the transition, despite Marc being well known and highly regarded. H2 underlying numbers were relatively in line with Consensus expectations H2 sales came in 4% ahead of Consensus expectations. Organically, sales grew by 12% in H2 (Consensus at 9%). H2 adjusted operating profit came in 5% ahead of Consensus driven by a solid performance at Environmental and Analysis (12% beat) and lower central costs. On central costs, we note that Halma had guided to GBP11-12m of IT-related cost for the full year and so ~GBP10m in H2. However, incremental IT-related costs only amounted to ~GBP6m in H2. This is a ~GBP4m delta relative to what Consensus were likely modelling. In addition, Halma also benefitted from a GBP3m provision release. Stripping this out we calculate that the ''clean'' H2 profit beat was closer to ~1%. The outlook message may lead to a tempering of margin expectations Halma guides to delivering single digit organic sales growth and for margin to remain similar to H2''22. The lack of expected margin progression in FY''23 is in part down to a step up in technology investments. Given Consensus models an FY''23 margin of 21.6%, +60bps relative to H2''22, we expect margin expectations to reduce modestly. We make slight changes to our numbers; TP falls to 2250p We adjust our organic sales growth rate assumptions slightly higher...
Record FY results. Revenues grew by 15.7% (+17.4% OCC) with adjusted PBT increasing 13.6% (+15.4% organic) driven by all divisions/regions. Return-on-Sales (RoS/PBT margin) contracted 40bps to 20.7%, as expected, from the unusually high levels during Covid. EPS grew 11.6% to 65.48p and the dividend is increased 7.0% to15 18.88p (43rd consecutive year of >5%). Cash conversion of 84% reflects growth and inventory contingency while net debt of £274.8m is only 7% higher y-o-y, despite significant investment. Positive outlook. A strong order book, and FY23 order intake ahead of revenue and in-line with a strong FY22 provides confidence. Management expects good single-digit percentage organic constant currency revenue growth in FY23 and RoS similar to the second half of FY22 (20.5%) Upgrading forecasts. We increase our FY23 organic/acquisition/FX revenue assumptions and adjust for guidance on higher interest costs and tax. Overall, we upgrade our FY23E PBT by 6.2% and FY24E by 5.9% (details on page 6). CEO retirement. Andrew Williams will retire after joining Halma in 1994 (18yrs as CEO). Marc Ronchetti, CFO, is now also CEO designate and will take over the role on 1 April 2023. A rigorous search process was conducted and this appointment provides continuity. Marc will be Halma’s 4th CEO in 50yrs. Investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (13 acquisitions in FY22 for £164m in total consideration, plus a £37m deal in April), highlighting its active portfolio management and efficient recycling of capital. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery.
Today's news & views, plus announcements from HLMA, POG, PHP, MDC, INCE, & HEIQ.
HLMA POG PHP INCE ANHGY
Acquisition details. Halma has acquired Canadian-based Deep Trekker, for a CAD60m (c£36m) cash consideration, to be included within its Environmental & Analysis sector. Deep Trekker is a market-leading manufacturer of remotely operated underwater robots used for inspection, surveying, analysis and maintenance. End market exposure includes aquaculture, renewable energy and ocean science and research. The deal multiple of c10x EBIT is within Halma’s normal range of 9-12x. We believe this is great value for a company growing revenues at high single-digit percentage levels and generating margins above the top-end of Halma’s target range of 18-22%. Further upside pressure to forecasts. Given the size of this transaction, we leave our forecasts unchanged, but initial calculations suggest that it could be c1% earnings accretive in FY23. Therefore, we see the risk to our forecasts as on the upside, compounded by acquisitions completed in H2’22 and current robust trading (INVe c3% below consensus PBT). Investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (a £36m deal in the first month of FY23, following 13 acquisitions in FY22 with a total consideration of £166m), highlighting its active portfolio management and efficient recycling of capital. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma is due to release its FY22 results on 16 June 2022.
Key takeaway #1. Yesterday's event epitomises what to expect from a Halma group company. Regulation + structural driven growth, an innovative product offering to support high margins and returns, and the autonomy to drive performance at the individual company level. This all under the supportive umbrella of the Group. The Fortress management team are excellent in our view and demonstrated how they continuously find incremental revenue opportunities and improve returns, with ESG at the heart of the strategy. Key takeaway #2. Increasing safety demands, created by both regulation and customer ESG agendas, are generating strong demand for Fortress’s product suite. This is compounded by its digital/connectivity offering which is enhancing growth and provides a strong competitive moat. The combination of these factors provide a positive future growth and returns backdrop and highlights what we believe are typical characteristics of a Halma company. Forecasts and next catalyst. No new information regarding current trading was disclosed and we therefore leave our forecasts unchanged (INVe is 2% and 3% below FY22 and FY23 consensus PBT expectations). Note that we estimate double-digit constant-currency profits growth despite a multitude of external headwinds. The next scheduled update is FY22 results, due on 16 June. Our view. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG-related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (13 acquisitions in FY22 for a total consideration of £166m), highlighting its active portfolio management and efficient recycling of capital. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery.
Pre-close in line; upgrade to Hold Another robust set of numbers, which illustrates the structural growth in Halma’s end markets and also the group’s impressive track record and fundamental ability to respond to external challenges. Management anticipates delivering FY22E adjusted PBT in line with consensus expectations, which means we are upgrading our forecasts by 2% and increasing our TP to 2,650p, accordingly. We also move our recommendation from Reduce to Hold. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com
A year of delivery and investment. Halma has delivered a trading update highlighting good progress in the second half of its financial year-to-date and an anticipation that FY22 adjusted PBT will be in-line with consensus expectations. This highlights the strength and agility of the business model, in our view. It has demonstrated pricing power, navigating the wide range of operational headwinds caused by CV19 and supply chain disruptions, whilst also continuing to invest in the business, to support future growth and enhance its resilience to further potential external shocks. Demand for Halma’s products remains positive, with order intake continuing to run ahead of both revenue this year and order intake for the same period last year. Upside risk to forecasts. Encouragingly we leave our forecasts unchanged, which show a strong underlying performance (+8% FY22 PBT growth y-o-y, notwithstanding a c.3% FX headwind), despite a multitude of external headwinds. We see the risk to our forecasts as on the upside, compounded by a positive outlook and recent acquisitions (INVe is currently 2% below consensus FY22E and FY23E PBT expectations). Positive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A (13 acquisitions in FY22 for a total consideration of £166m), highlighting its active portfolio management and efficient recycling of capital. Halma’s valuation is at a deserved premium to peers, in our view, given its relentless delivery. Next catalyst. Halma is hosting a site visit to Fortress Safety on 7 April 2022.
Today's news & views, plus announcements from HLMA, HMSO, INVP, DPH, KNOS, MADE, CLG & SAVE.
Acquisition details. Halma has acquired US-based International Light Technologies (ILT) as a bolt-on for its Environmental & Analysis sector business, Ocean Insight, for a cash consideration is $26.6m (c£19.5m). ILT is a leading developer of technical lighting sources and light measurement systems, which are used in biomedical, environmental, agricultural, food and beverage, and industrial applications. The deal multiple of c10x EBIT is within Halma’s normal range of 9-12x but with higher margins (27% vs. Halma 21%). Relentless acquisition activity. Halma has now completed 13 acquisitions within its financial year to March 2022. This is for a total consideration of £166m (£107m spent on 10 acquisitions in the first-half of the year and £59m on 3 acquisitions in the second-half). Upside risk to forecasts. Given the size of this transaction, we leave our forecasts unchanged. However, we see the risk to our forecasts as on the upside, compounded by recent acquisitions (INVe 2% below consensus PBT). Continuing to deliver. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A, as noted above, highlighting its active portfolio management and efficient recycling of capital. Investment case. Remains positive but the shares have been under pressure driven by a market rotation of high valuation rated stocks in a rising yield environment. Clearly, these external pressures are not company specific and we expect continued financial delivery, thus warranting a valuation premium. Next catalyst. We expect a trading update around 23 March 2022.
It has been a tough and unusual start to the year for Halma shareholders, with a virtually unprecedented fall in the shares of -26%, a similar decline over a six-week period has been seen only twice before in the last twenty years, driven by the rise in bond yields consequent market rotation and va
Management conservatively maintained full year guidance despite H1 results well ahead of raised expectations (PBT of £154.9m was c. £10m or 7% higher than consensus expectations), due to risks relating to increased supply chain, logistics and labour market disruption. As such this leaves full year
Halma delivered a solid H1''22 beat driven by yet another exceptional EandA performance Sales in H1 came in 6% ahead of Consensus expectations, with Halma delivering 23% organic sales growth. All divisions looked strong and grew close to or above 20%. Environmental and Analysis (EandA) delivered a stand-out performance with organic sales growing by 25% (despite the relatively tougher comp). Headline profit came in c.8% ahead of expectations driven by a strong performance at EandA; lower central and IT costs also helped. On IT costs, we would note that Halma had guided to GBP11-12m of IT related costs for the full year but only booked c.GBP1m of costs in H1. While we don''t know how Consensus had phased IT costs, and so how ''clean'' the H1 beat was, we are encouraged by the fact that Halma managed to beat our expectations by c.3%, excluding the IT cost effect. Guidance reiterated; margin is still expected to normalise in H2''22E Despite the strong H1 print, Halma reiterated its guidance. On the conference call, Halma''s CFO gave a detailed overview of margin trends, noting that the strong H1 margin was driven by a slower than expected return in overhead variable costs in Q1. By Q2, such costs were noted to have been in line with management expectations and margin had returned to a more typical level. Looking forward, the message is that the H2 margin should also be close to more normalised levels. Restocking likely offered some support in H1; however underlying demand is still strong Halma noted that restocking of distribution channels/customers pre-buying might have also supported the high organic sales growth seen in H1. However, it managed to reassure investors by highlighting that a recovery in markets that are still relatively depressed (areas of elective in Medical) should act to offset any potential headwinds associated with restocking effects dissipating. In our view, the strong order development (book-to-bill 1.0x) is also likely to offer...
HALMA^ (HLMA, Buy at 3109p) – Record HY22A results; FY22F unchanged.
Acquisition details. Halma has acquired US based Infinite Leap as a bolt-on for its Medical sector business, CenTrak, for initial cash consideration is $30m (c£22m). Infinite Leap is a healthcare consulting and services provider for real-time location technologies. It is also developing unique new hardware and software solutions for applications adjacent to CenTrak’s core market. We believe that the deal multiple (for the core business of Infinite Leap – >90% of revenues) is within Halma’s normal range of 9-12x EBIT with a similar returns horizon. Relentless acquisition activity. Halma has made 12 acquisitions already within its financial year to March 2022. This is for a total consideration of £146m (£107m spent on 10 acquisitions in the first-half of the year and £39m on 2 acquisitions in the second-half thus far). Upside risk to forecasts. Given the size of this transaction, we leave our forecasts unchanged. However, as highlighted yesterday in our half-year commentary note (click here to view) we see the risk to our forecasts as on the upside. We believe our view is compounded by this acquisition. Positive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A – 12 acquisitions completed this financial year (as noted above) in addition to one disposal – highlighting its active portfolio management and efficient recycling of capital. Halma’s valuation premium is warranted, in our view, given the relentless delivery of its business model.
Record H1 results. Revenues grew by 19% (+23% organic) with Adjusted PBT increasing 27% (+32% organic). Strong organic was recorded in all sectors and major regions with very strong growth in the UK and Asia Pacific, against weaker comparatives. Return-on-Sales (RoS - PBT margin) expanded 130bps to 21.0%. Cash conversion of 85% was impressive given revenue growth. Dividend growth continues with the interim dividend increased by 7%. Positive outlook. Order intake is running ahead of revenue and underlying demand drivers are strong across all business areas. Recently upgraded full-year guidance is unchanged which is impressive given well-flagged external headwinds in the second-half as well as; returning variable costs, increased R&D spend, and £10m of SaaS/IT upgrade costs. More typical rates of revenue growth and RoS are expected in the second-half with the latter more in line with historical levels. The acquisition pipeline remains healthy and we expect more transactions to follow the busy first-half activity. Upside risk to unchanged forecasts. Given the outlook commentary, we leave our forecasts unchanged, but estimate the risk to future changes is to the upside. First-half profits beat our estimates by a net c.£5m which provides comfort in our second-half estimates. Positive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A. Within first-half Halma made 10 acquisitions (total consideration of £107m) and one disposal (£65m), highlighting its active portfolio management and efficient recycling of capital. A valuation premium is warranted in our view.
Meeting Notes - Sep 27 2021
HLMA CVSG PTEC MGP GAMA BAG CBG ERGO FERG MAB1 MOON NFG
Another strong update from Halma this week and with sufficient headroom on H2 to suggest scope for further upgrades as the year progresses, but the rating demands it (Mar FY22E PER of 50x).
Today's news & views, plus announcements from FLTR, HLMA, BAB, OXB, HUW, SHED, ZOO.
1H22 trading update; higher 1H weighting and 2% upgrade Halma has reported “strong progress” in its 1H22 trading update, and expects to report strong organic revenue and profit growth for 1H22. Management expects a slightly stronger 1H weighting and sees full year PBT “slightly ahead of our previous guidance”. In response to this, we increase our FY22E PBT by 2% and our target price rises accordingly. While clearly a positive trading update, with the possibility of further upside to estimates (+3-5% to FY22E) if expenses do not return as fast as expected in 2H, we retain our Reduce on valuation grounds. Halma is trading on 49x FY22E PER, 38.4x EV/EBIT and a 0.6% dividend yield and growing at a 7.8% three-year EPS CAGR. Jolyon.Wellington@peelhunt.com, Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com
Strong current trading. Halma delivered growth across all sectors and regions and we estimate that organic revenue growth is at high-teen percentage levels y-o-y. This reflects the non-discretionary style demand of its product portfolio, customer activity returning post Covid disruptions, and the agility of its business model to respond to changing market conditions. Profits also benefitted from a slower than expected return of variable overhead costs. Cash generation remained good while M&A activity was buoyant. Positive outlook. Order intake is ahead of revenues so far this year and also ahead of the same period last year. Management expects ‘more typical rates of revenue growth and return on sales in the second half of the year’ given y-o-y comparatives and a return of variable overhead costs. Additionally, a continued impact on revenue, costs and working capital from increased supply chain, logistics and labour market disruption provide headwinds. Despite this, management expects FY22 PBT to be slightly ahead of previous guidance. Upgrading forecasts. We, conservatively, upgrade our FY22E and FY23E revenue and profit forecasts by c2% to reflect current trading, management guidance and current FX rates. A ‘healthy acquisition pipeline’ is encouraging. Positive investment case. Halma has a proven business model, which should continue to generate long-term revenue and profit growth. The critical nature of its product portfolio, geared towards non-discretionary and ESG related demand, should continue to underpin positive momentum. Halma also enhances its attractive organic growth with M&A. Within this financial year Halma made ten acquisitions (total consideration of £108m) and one disposal (£65m), highlighting its active portfolio management and efficient recycling of capital. A valuation premium is warranted in our view.
Nine acquisitions in five months Halma has announced three new acquisitions: Ramtech in Safety for £16m, and Dancutter and Sensitron in Environmental & Analysis for £15m and £18m. It also announced a disposal. We update our model, reducing FY22E revenue by 1%, but leave PBT broadly unchanged. Our valuation shifts to a DCF-based approach to better reflect the market’s view of Halma’s long-term cash flow generation prospects, and increases 8% to 2,508p. However, given the share price has increased recently, we retain our Reduce rating on valuation grounds. On our new forecasts, HLMA trades on FY22E/23E/24E PEs of 47.4x/43.6x/40.2x. Jolyon.Wellington@peelhunt.com, Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com
The acquisitions. Halma has acquired Ramtech (for £15.5m), Dancutter (£15.4m), and Sensitron (£17.9m). We expect each business to achieve strong revenue growth (high single-digit % levels at least) and generate margins comfortably within the Group target range (18-22%). We note that demand for its products is driven by regulatory requirements and each company should benefit from investment and wider revenue opportunities on the Halma platform. The disposal. Halma has disposed of Texecom for £65.0m, providing a good return on its investment made back in 2005. Looking at the financials, Texecom had a 5% revenue CAGR and, we believe on average, margins were below the Group target range. We also note that Texecom revenues are not driven by regulatory demand and are encouraged to see Halma’s disposal discipline. Our view. These transactions yet again prove the attractiveness of Halma’s M&A strategy and mitigates the argument of those who doubt Halma’s ability to continue to find acquisitions. The financials, long-term prospects and deal multiples (c11x EBIT) all enhance the Group. A higher assigned premium, given the higher returns profile of its M&A activity, increases our TP to 3200p. Positive investment case. Halma has a proven business model which should continue to generate long-term revenue and profit growth. The critical nature of its products, geared towards non-discretionary demand and ESG-related growth drivers, should ensure that the Group continues to deliver. Halma has proven to be resilient through Covid and is well positioned to capitalise further on market recovery and M&A opportunities (£138m of acquisition spend since December 2020). Its valuation is at a premium, but we expect the positive investment case and consistent growth to ultimately drive the shares forward. Next catalyst. We expect a trading update towards the end of September.
Halma plc PageGroup PLC
Halma delivered another exceptional performance in FY''21 FY''21 marked another solid year for Halma where it was able to deliver another year of organic profit growth (+1%) with Group headline operating profit coming in c.4% ahead of Consensus expectations. Recall, Halma updated FY''21 guidance at its Q3 IMS (one week before fiscal year end) and so the beat here came as more of a surprise. As for initial colour on FY''22E trading, Halma noted that orders continue to progress positively, with book-to-bill remaining above 1.0x whilst revealing that organic sales growth in the first five months of calendar ''21 was 10%. FY''22E presents costs headwinds that Halma will have to navigate Halma guides to low double digit organic profit growth for FY''22E with margin expected to return to a more ''normal level''. The implied margin cut in FY''22E can be better understood by analysing the FY''21 profit bridge. Halma delivered GBP43mn of cost savings in FY''21 from measures which may be considered temporary in nature (RandD, travel, marketing, employee cost cuts). The expected reversal of the majority of these savings will act to weigh on profitability in FY''22E. It is also worth noting that organic guidance, excludes GBP12mn of expected software related investments which under IAS 38 will now likely be expensed, rather than amortised over 3-5 years, as previously anticipated. This suggests that all-in FY''22E upgrades, post IAS 38, are likely to be more muted. Soundbites in regards to MandA were encouraging The CEO spoke positively in regards to the MandA pipeline; after a lull in activity in FY''21, conversations with potential targets are now accelerating. Geographically, a greater share of deals are still expected to happen in traditional markets (Europe, US) whilst divisionally, the new dedicated MandA team at Environmental Analysis is expected to increase the pace of acquisitions. Given Halma''s track record, a pickup in deals will likely be taken well. Updating...
Strong FY22E organics being offset by margin normalisation Today Halma delivered a good set of FY21 results, in spite of challenging market conditions. The outlook is robust, with higher than projected organic growth in FY22E being offset by an expectation of margin normalisation downwards. As we argued in our initiation note three months ago, we see Halma as a company offering “High quality growth at a high price”, and we retain this view. On our FY22E/23E estimates, Halma trades on 44x/40x PE and has FCFe yields of 2.0%/2.3%, respectively. We increase our target price from 2,200p to 2,315p and maintain our Reduce recommendation. Jolyon.Wellington@peelhunt.com, Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com 3-page note
Halma, the safety, health, and environmental technology group, today announced its full-year results for the year to 31 March 2021. Overall, the group made record profit progress for the 18th consecutive year and slightly ahead (c4%) of our March 2021 revised expectations on an adj PBT level and 5.5% ahead of our adj. EPS estimate. The statement highlighted Halma expects its markets to recover but at varying rates, whilst also highlighting the potential headwinds from currency, inflation, and supply chain constraints. Halma has made a good start to the year with order intake currently ahead of revenue and year-on-year. Thus, the Group expects to deliver low double-digit organic constant currency profit growth in FY2022F. Therefore, given the beat to our expectations and the guidance, we increase our FY2022F adj. PBT (pre-IAS 38) by c7% to £305m which implies an adj. EPS upgrade of c6% (assuming a higher effective tax charge) to 63.2p. As we move forward our valuation model one year ahead, we increase our fair value by c15% from 2,580p to 2,970p (c11% upside). As we have previously mentioned we believe our forecasts and guidance are still cautiously struck and customer investment cycles could recover faster (as they look to meet increasing regulatory standards and greater leverage from a COVID-19 recovery) thus, see upside to our assumptions. We retain our Buy recommendation.
Halma has announced the acquisition of PeriGen, a software company, for a cash consideration of $58m (c. £42m), using existing debt facilities. PeriGen, based in North Carolina, USA, is one of five principal vendors in the US electronic fetal monitoring market, with technology that protects mothers
Announces the bolt-on acquisition of PeriGen Halma has announced the bolt-on acquisition of PeriGen, a software company operating in the perinatal care subsector in the US medical market. The deal looks attractive, with Halma paying 3x EV/Sales for an interesting business in a growing end market. We raise FY22E/23E revenue by 1%/1%, with our PBT unchanged, due mostly to FX headwinds offsetting the extra profit due to the acquisition. The deal is in line with Halma’s successful strategy of sourcing attractive bolt-ons, but we have a Reduce rating due to the demanding valuation. The company trades on 43x Mar 22E PE, 33x EV/EBIT and a 0.7% div yield. Jolyon.Wellington@peelhunt.com, Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com
Halma's recent trading update demonstrated the agility within the Group to rapidly adapt to the changed economic environment. This, combined with some recent recovery in the 'quality, growth' stocks (aided by small retrenchment in long term bond yields) has seen the shares erase early year weakness
Topline trends improved sequentially, as anticipated Halma provided the market with a short H2 trading update (covering the period 1 October 2020 to date). Within the release Halma was able to point towards a sequential topline recovery playing out with momentum improving across most sectors, just as Consensus anticipated. Infrastructure Safety was noted to have ''made further progress'' whilst Process Safety showed ''gradual'' improvement. Medical benefited from a ''modest improvement'' in demand for products and services related to elective procedures whilst Environmental Analysis was said to have delivered a ''resilient performance''. Geographically, Halma noted that revenue had grown in all four major regions (USA, UK, Mainland Europe, APAC) and flagged that growth in APAC was strongest (driven by China). Guidance implies c.3% Consensus earnings upgrades for FY 2020/21e Management now guides to adjusted PBT that is similar to the level delivered last year (previously PBT was seen c.5% lower YoY). Halma notes that its guidance includes a small adverse impact from FX, compared to the broadly neutral effect forecast at the time of its H1 results, implying a larger underlying upgrade to its original guidance. Whilst a step up in guidance would have been expected (Visible Alpha Consensus already modelled PBT c.2.5% lower YoY) the magnitude of the upgrade is a welcome surprise as it points to c.2.6% upgrades to Consensus (Visible Alpha) earnings expectations for the FY or c.5% upgrades for H2. No deals announced on the day but could activity soon pick up? Halma has remained relatively quiet on the MandA front so far into 2021 but the recent revamp of the Group''s structure - combination of the two Safety sectors and the formation of dedicated MandA teams for the Medical and Environmental sectors - could mean MandA activity starts to pick up in the new fiscal year. Updating estimates for latest trading FX headwinds offset the underlying upgrades we...
Updating estimates following FY21E pre-close Following this morning’s upgraded guidance, we increase our PBT forecasts for FY21-22E by 5%, and raise our target price 6% to 2,200p. Although the company is making progress and has good long-term growth prospects, we find current valuations demanding and continue with our Reduce recommendation. Jolyon.Wellington@peelhunt.com, Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com
Good finish to FY21E Halma has raised its FY21E guidance, from expecting a YoY PBT decline of -5% to flat. In our view this represents a good statement from a company with positive growth prospects, assisted by organic growth and M&A. However, balancing this positive statement is the high valuation, with the group trading on a March 2022E PE of 39x and yielding 0.8%. Reduce, TP 2,067p reiterated. Jolyon.Wellington@peelhunt.com, Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com
High quality growth at a high price Halma is a well-run company with strong growth prospects, but with a demanding valuation to match. Positives include a strong track record of organic growth and attractive global exposures such as safety, healthcare & environmental. Halma also has an interesting M&A growth angle, leading us to envisage a possible 14.3% EPS CAGR over the next five years. But in the near term, we believe these positives are more than encapsulated in current valuations, with the shares having reached 42x/39x FY21E/22E PER (double its 21x PER of four years ago). With 9% downside to our 2,067p TP, we re-initiate with Reduce. Jolyon.Wellington@peelhunt.com 18-page note
We see limited potential for a trading misstep over the coming months with expectations suitably conservative. The greatest risk from a share price perspective would appear to be further increases in long term bond yields and sector rotation towards cyclical/value stocks.
Results. Revenue of £189m, down 16%, with EBITA £14.4m, vs our £180.8m and £14.9m. H220 EBITA of £10.2m was more than double H120’s £4.2m driven mainly by the Resources swinging back to profits as volumes improved from the H1 low point. Cash was strong, with £1m net debt versus £15m at FY19, a signal of the strength of the model and B/S, supporting a final dividend of 3p. Outlook. The results give confidence that RM is on a path back to historic profits. While we reduce FY21E, it’s from choosing increased investment to drive share gains and additional pandemic restrictions in FY21 moving a recovery to the right. This is timing vs structural, with the need for schools and exams boards to invest in digital technology now more pressing than ever. F/C. FY21E Rev £193m (prev £192m), EBITA £16.1m (£18.8m), EPS 13.8p (17.1p), FY22E Rev £210m (£218m), EBITA £22.2m (£27.6m), EPS 19.3p (25.7p) Resources. Sales fell 19%, with £3.1m EBITA (FY19 £13.7m), but H2 was £5.2m vs -£2.1m in H1. School attendance is up vs other lockdowns, with volumes tracking more favourably, so we expect revenue growth this year. Investment in the new warehouse, automation, digital technology and staff will limit some margin gearing near term, but we still see a yoy doubling of profits. Results. Revenue fell 16% with profit £6.6m (£8.7m FY19). RM’s international base (c33% of contracts) is seeing fewer cancellations and there are also volume increases from recent client wins. However, the UK exam cancellations means we take a prudent stance and forecast modest revenue and profit declines, but the bounce back should be rapid as conditions normalise. Education. Sales fell 9%, with £9.3m profit (FY19 £10.4m). This division has potentially the strongest growth drivers as schools now look to partners to deliver their IT requirements, guaranteeing uptime and service delivery. However, near term the focus is on coping with the current climate, with bids pushed out, but longer term we expect a sharp snap back in activity. View. Historic profits implies <10x PE which drives our Buy & scenario 365p TP.
HLMA MCRO RM/ ULVR
Dame Louise Makin to be next Chair Halma appoints Dame Louise Makin as its next Chair. Louise will join the Board today as an independent NED and Chair Designate, joining the Nomination and Remuneration committees, replacing Paul Walker as Chair in July 2021. Paul will step down from the Board after 8yrs in this role. This was previously announced on 23 Sep 2020 – aligned with succession planning and the UK Corporate Governance Code requirement of not beyond 9yrs of tenure. Louise has a career in business as a chief executive and board director, working across multiple sectors. Louise was CEO of BTG (specialist healthcare) for 15yrs, driving strong growth and market cap progression. Louise has experience across multiple boards and is currently a NED of Theramex (pharmaceuticals), Atotech (specialty chemicals), and Intertek (FTSE 100 testing and certification group). Louise will step down from Intertek in June 2021. An orderly handover and a strong appointment We view this announcement as a positive. Firstly, it is a well-managed process – as expected – allowing for an orderly handover ahead of the role starting in July. Secondly, we view this as a strong appointment given Louise’s experience provides a relevant cultural fit, additional Board expertise and ESG focus. We reiterate our positive investment case Halma has a proven business model which should continue to generate revenue and profit growth beyond the lasting impacts of Covid-19. The critical nature of its products, geared towards non-discretionary demand and ESG related growth drivers, should ensure that the Group continues to deliver. Halma has proven to be resilient and is well positioned to capitalise on market recovery and M&A opportunities (acquisition resumption on 21 Dec 2020 with a £37m deal for Static Systems – click here for our note). Its valuation is at a premium, but we expect the positive long-term investment case to ultimately drive the shares forward.
Capital Goods Weekly
HLMA HILS IMI MRO MGAM OXIG QQ/ RSW ROR SXS SPX STRL TTG ULE
Resilient trading. As reported at its FY20 results in July, Q1 revenues were 13% lower y-o-y at constant currency; since then, Q2 revenue trends have gradually improved. As expected, end markets are mixed, with the USA and Europe delivering resilient trading, while the UK and AsiaPac remain challenging (although China is recovering). This can be explained largely by the divisional mix which saw Environmental & Analysis performing well, Medical recovering and the Safety sectors recovering from the limitations of physical access. Outlook improving. While the general economic outlook remains uncertain, Halma continues to demonstrate resilience – benefitting from the structural and regulation driven growth drivers in its end markets. Revenue trends are improving and cost and working capital control has protected profitability whilst providing good cash generation. Order intake remains ahead of revenues and is only marginally down y-o-y. Management has reiterated that it expects FY21 adjusted PBT to be 5-10% below versus FY20 and naturally slightly more weighted to the second half of the year. We currently forecast FY21E adjusted PBT to be 7.3% lower year-on-year and identify multiple upside potential factors (see page 2) to our forecasts, including M&A. Our view remains positive. Halma has a proven business model which should continue to generate revenue and profit growth beyond the impacts of Covid-19. The critical nature of its products, geared towards non-discretionary demand and ESG-related growth drivers, should ensure the Group continues to deliver. Halma has proven to be more resilient than most and is well positioned to capitalise when markets recover. We expect the positive long-term investment case to ultimately drive the shares forward and remain at Buy. Next catalyst – interim results on 19 November.
Halma, the safety, health and environmental technology group announced its full-year results for the year to 31 March 2020 on 14 July 2020. Overall, the group made record revenue and profit progress for the 17th consecutive year and slightly ahead of our expectations on the adj dil EPS level. However, the COVID-19 pandemic is still expected to have a net adverse impact across its niche-end markets in FY2021F and for results to be significantly H2 weighted. While the timing and profile of recovery remain uncertain, management currently forecasts FY2021F adj. PBT to be 5-10% lower than FY2020A (£267m). While the factors are largely beyond the company’s control, we still expect Halma to ultimately emerge stronger and in good financial health. Halma’s purpose is to grow “a safer, cleaner and healthier future” which is backed by themes such as population growth, urbanisation, increasing regulation (health and safety) and digitalisation. We retain our Buy recommendation based on our revised fair value of 2,400p but see shares going beyond this level if customers’ investment cycles recover faster than expected as they look to meet increasing regulatory standards.
Q1''21 trading was slightly disappointing; whilst the outlook message took a more sombre tone and highlighted that in a COVID19 world Halma''s businesses are not quite as resilient as the Street wants them to be. However, with orders remaining robust, restrictions easing and with regulatory requirements driving Halma''s top line, we believe that sales across most of the Group can recover relatively quickly from the downturn - in our view, Company guidance may be too conservative. Q1 trading was slightly disappointing... Halma suffered -13% organic revenue decline in Q1''21 (calendar Q2''20). Considering EandA continued to deliver growth, it implies that together the remaining Halma divisions declined by at least -17.5%, with Infrastructure and Process down significantly more. Such a performance is not ''Halmaesque'' and may have called some to question whether Halma''s relative premium is justified. The ''good'' news is that declines were in areas where we expected weakness. Process suffered with its OandG exposure, Medical with elective procedures being deferred, and Infrastructure with restricted access to buildings. Looking ahead we expect elective demand in Medical to recover and for regulatory requirements of buildings to necessitate a bounce back in demand at Infrastructure. Richer margin OandG businesses within Process are, however, likely to remain weaker for longer. ..and the outlook considerably more so; but is Company guidance too conservative? Halma also disappointingly guided for headline PBT to decline by 5-10% YoY in FY''21e; Consensus had expected a flat YoY development - weakness in richer margin OandG businesses and the need to self-fund furlough schemes likely play a part here. However, with orders remaining robust, restrictions easing and the fact that regulatory requirements often drive Halma''s topline development we believe that Halma''s sales have greater potential to recover quickly from this downturn than the revenues of many other...
Strong FY20 results. Halma recorded yet another year of progress with revenues growing by 11% and profits by 9%. The FY dividend is increased by 5%, the 41st consecutive year of at least a 5% increase, making the Group one of the few companies in the FTSE100 which continue to pay a dividend. Cash generation was strong, 97% conversion, and net debt increased only due to over £200m of acquisition expenditure. Halma maintains plenty of liquidity to navigate this unique period and, with Net Debt/EBITDA of 1.1x, has ample headroom to take advantage of acquisition opportunities. Outlook uncertain, but resilient so far. Clearly the outlook is uncertain, but trading in April-June (Halma’s Q1’21) has demonstrated resilience. We lower our forecasts to incorporate Q1 trading (-4% on revenues and -13% on profits) and fall within the newly guided FY21 PBT range of 5-10% lower year-on-year. Despite an understandable anticipated H2 weighting, we understand this to be only modestly different to historical norms. We expect a rebound in FY22E, but set our forecasts prudently at historical growth levels, noting potential stronger recovery upside post Covid-19 lows. We also believe that acquisitions will feature in FY21 providing further potential upside to forecasts. We remain positive. Halma has a proven business model which should continue to generate revenue and profit growth beyond the impacts of Covid-19. The critical nature of its products, geared towards non-discretionary demand and ESG-related growth drivers, should ensure that the Group continues to deliver. Halma has proven to be more resilient than most and is well positioned to capitalise when markets recover. Given its premium valuation we assume some share price volatility in the near-term, but expect the positive long-term investment case to ultimately drive the shares forward. We remain Buy as we look through this extraordinary period.
Halma published a COVID-19 trading statement on 21 April 2020 whereby it reaffirmed its FY2020F guidance (adj. PBT to be in range of £265m to £270m), highlighting its robust financial position (c£750m of committed facilities) and showcasing its resilient/diverse portfolio of operating companies across niche-end markets. Over 30 of Halma’s operating companies (i.e. 70%) are deemed essential and continue to operate during lockdown restrictions as they provide critical safety, healthcare and environmental protection solutions. However, the overall COVID-19 impact is expected to have a net adverse impact on FY2021F, and financial performance is expected to be significantly H2 weighted. In this note, we adjust our forecasts using broad-based assumptions until further clarity is given at its FY results in July. We retain our Buy recommendations based on our revised fair value of 2,385p (upside c12%) from c2,400p.
FY20 results in-line & strong financial position. PBT is expected to be between £265-270m (in line with 19 March guidance). Management now expects revenues to be c£1,330m (INVe £1,324m) and net debt pre-IFRS16 c£320m (INVe £317m). Given logistical challenges, FY20 results will now be released on 14 July and the AGM in early September. Halma has committed facilities of c.£750m. The earliest maturity is for £74m in January 2021. Key Covid-19 considerations. Only 2 of Halma’s 54 operating facilities are closed with the majority of its businesses having the mandate or permission to continue trading. At least 10 companies are using rapid prototyping capabilities to manufacture PPE, while 3 are making components for ventilators/respiratory devices and 2 are supplying parts used in new medical diagnostic test instruments. Management has achieved net cost savings of c£20m in Q1 and has taken steps to continue this as needed. Senior leaders have agreed to salary reductions from 1 April 2020 for an initial three-month period while cash preservation actions are taken across the Group Outlook & forecasts. Clearly this is an uncertain period and we expect Halma’s FY21, starting in April, to be impacted by Covid-19. It is too early to assess how much medical, environmental and critical infrastructure demand will offset weakness elsewhere, such as oil & gas, but we expect Halma to demonstrate Group resilience. We forecast FY21E EPS growth of 6%, (half acquisition contribution) compared to the sector CY20E c-30% growth. Our view. Halma has a proven business model which should continue generating revenue and profit growth, even when external events are impacting. Covid-19 will clearly impact, but we expect Halma to be more resilient than most and better positioned to grow when markets recover.
Halma released a scheduled trading update on 19 March 2020 stating the Group made good progress during FY2020F (Mar). However, given the COVID-19 outbreak and its slight negative impact on Q4, the Board now expects adj. PBT to be in the range of £265m to £270m. Thus, implying a c3% downgrade to market consensus of £275.5m. The Board notes the risks around the evolving/uncertain situation and will take mitigating actions as appropriate. In this note, we adjust our FY2020F forecasts, but leave FY2021F and FY2022F earnings unchanged until further clarity emerges in June. We revisit each division and provide scenarios/sensitivities with regards to possible revenue and margin changes. We continue to believe Halma is a great quality company and likely to outperform the index during these uncertain times. We retain our Buy recommendation.
Halma is not immune, but more resilient than most. Halma has released its scheduled trading update for the period from 1st October to date (it has a March year-end). The Group has achieved revenue growth in all major regions and all divisions, demonstrating resilience. We believe this is impressive in both economically and politically tough markets. However, given the disruption of Covid-19 Halma now expects FY20 adjusted PBT to be within the range of £265-270m, this compares to a consensus mean of £275.5m and INVe of £276.5m. We are mindful that Covid-19 could impact further, but remain aware that Halma has more resilience than most given its high quality business model, strong demand drivers and sound financial position. Forecast resilience. We make adjustments to our forecasts and prudently move to the bottom of the range for FY20 (PBT -4% in FY20E and -7% in FY21E) in light of today’s trading update. We have not modelled current FX rates within our FY21E forecasts given recent sterling volatility, but note these rates extrapolated would offset c70% of our lowering of FY21E PBT. Investment case. Halma has a proven business model which continues to generate revenue and profit growth, even when external events are impacting. Despite our Covid-19 adjustment, we still forecast Halma to generate near double-digit profits growth in FY20E and FY21E. Halma has the ability to continue to deliver growth (order intake is still running ahead of revenue) and, despite recent acquisition spend (£227m in FY20), the Group has a strong balance sheet both on net debt levels (FY20E 1.2x EBITDA falling to 0.7x in FY21E) and bank facility headroom. We believe that this a buying opportunity. Next Catalyst. Halma will release its FY20 results on Thursday 11th June.
Halma hosted an Infrastructure Safety investor event on Thursday 5th March at its head office in Amersham, its largest sector by revenue (34% in FY2019). While no material information was disclosed during the event, it reinforced Halma’s market leading position and impressive M&A track record. Halma’s purpose is to grow “a safer, cleaner and healthier future” which is backed by population growth, urbanisation, increasing regulation and digitalisation. Management’s strategy is to “double earnings every five years” equally through organic and acquisitive growth, which we believe is not unreasonable given their track record. While we do not forecast M&A within our earnings, we take the view that there is enough capacity within the Group to support high-quality acquisitions at attractive multiples. Doubling FY2019A adj. EPS in five years, assuming an average PER of 35x can be sustained and applying discount rate of 9% equates to a fair value of c2,400p. With 24% upside, we upgrade our recommendation to Buy from Hold.
Site visit overview. The focus of this event was Infrastructure Safety which is Halma’s largest sector and accounts for c.35% of group revenues and profits. As you would expect from a Halma sector, the strategy is to acquire and grow businesses in niche infrastructure markets underpinned by strong growth drivers. These are identified as: population growth, urbanisation, increasing regulation, and digitisation. Halma presented a full suite of senior management, highlighting the depth of leadership talent in the sector. Additionally, the product demonstration section really drove home the technology innovation within the group which looks set to drive future growth. Sector financials. Demand for its products are predominately guided by regulation-driven demand and have a high technology content, with high market shares guarded by defendable barriers-to-entry. This has resulted in strong growth (13% revenue and 15% profit CAGR since FY14) and high return on sales at 21.8%. Forecasts and next catalyst. No new information regarding current trading was disclosed and we therefore leave our estimates unchanged (INVe FY20e PBT of £276.5m and EPS of 58.4p; 12.5% profit growth). The next scheduled trading update is due on 19 March. Our view. Halma has a proven business model which continues to generate revenue and profit growth, even when external events are eroding business confidence. Since the start of 2020, Halma has completed 4 acquisitions (9 in FY20) which have in turn added near 3% to our FY21E EPS forecast. Halma has the ability to continue to deliver growth and, despite a flurry of recent acquisitions, still has a strong balance sheet. Overall, we believe its premium valuation multiples are justified.
Acquisition of Maxtec Halma has announced the acquisition of US-based Maxtec for $20.0m (£15.3m) funded out of existing facilities. Maxtec designs, manufactures and distributes oxygen analysis and delivery products for use in medical and non-medical applications, specialising in respiratory care. Maxtec has high market shares in a growing niche where demand is being driven by ageing populations and an increasing prevalence of heart and respiratory conditions. Maxtec will be managed as part of Halma’s Perma Pure business within the Medical sector of the Group with key members of its team remaining with the business. Financials and opportunity Management notes that market growth is 6-7% and revenues for the year to March 2019 were $20.4m (£15.7m) with EBIT of $1.8m (£1.4m). The deal looks good value in our view at sub 1x Sales and 11x EBIT, compounded by a footpath to the doubling of margins towards group levels over the next 2-3yrs. Based on the revenue and EBIT figures given in the statement this would suggest just under 0.5% EPS accretion for FY21. Our view and valuation This is yet another classic Halma acquisition, which is #9 for FY20, into highly regulated end markets which demonstrate structural demographic growth. There are good revenue synergy opportunities and potential to enhance both end market and geographical, opportunities on the Halma platform. The shares are trading on a FY21E PE of 34.4x and EV/EBITDA of 23.8x falling to 31.7x and 22.3x respectively in FY22E.
Acquisition of NovaBone Products. Halma has paid an initial £74m consideration (£66m adjusted for tax benefits) for US-based NovaBone at 12.5x adjusted EBIT. NovaBone is the only US FDA approved synthetic bone graft provider in a market that is growing at 7% p.a. We believe that NovaBone is currently growing ahead of this rate and commands 33% EBIT margins. It will form part of Halma’s Medical sector and will believe will benefit from Halma’s platform to enhance growth further. Acquisition of FireMate Software. Halma has paid £6.2m for 70% of Australian-based FireMate at 17.7x EBIT. FireMate provides cloud-based fire protection maintenance software to fire contractors on a subscription basis. This technology adaption is growing strongly and we believe the business is growing at double-digit levels. Attractively, this business generates strong EBIT margins and there is much scope for Halma to enhance the business on its global platform. Increased forecasts. Given the timing of these acquisitions and Halma’s March financial year-end, we make negligible changes to our FY20E EPS forecast. However, our FY20E net debt estimates moves to £323.3m (from £243.1m). We increase FY21E EPS by 1%. Our view. These acquisitions look like ‘classic Halma’ to us – high profitability growth markets with strong structural demand drivers and funded out of its own cash generation. Overall, Halma has a proven business model which continues to generate growth through the cycle. Further acquisitions should feature given its healthy pipeline and strong balance sheet (FY20E 1x net debt/EBITDA post these acquisitions). We believe its premium valuation multiples are justified. We reiterate our Hold and increase our TP to 2250p (from 2045p), driven by our earnings upgrade and higher peer group multiples.
Strong results. Revenues grew by 12%, including 5% organic growth and a 4% contribution from acquisitions, to £654m. We believe that this a strong performance given tough comparators. It was driven by all divisions and regions, with the USA, UK and Asia Pacific particular stand-outs. Adjusted PBT posted strong growth of 14% (+6.5% organic and 4.4% from acquisitions) to £129m driven by volumes and the benefits of operating efficiencies. EPS grew 15% to 27.2p while the dividend was increased 7% to 6.54p. Cash generation was robust (82% conversion) and net debt of £310m reflects £88m of acquisition spend and IFRS 16 of £57m. Positive outlook. Since the period end, order intake has continued to run ahead of revenue and order intake last year. Management expects to make further progress in the second half of its financial year and is on track to deliver another good full year performance. Increased forecasts. Given the good first half performance we are adjusting our profit forecasts by c2%. This allows for reduced FX tailwinds (none at current rates) and a slightly increased net interest charge. We have taken a conservative stance, but believe the risk to our forecasts are firmly on the upside. Our view. Halma has a proven business model which continues to generate revenue and profit growth, even when macroeconomic and global political uncertainties are eroding business confidence. Further acquisitions (£88m spent in H1) may well feature in the near-term given its healthy pipeline and strong balance sheet (FY20e 0.7x net debt/EBITDA). Overall, we believe its premium valuation multiples are justified. We reiterate our Hold.
Site visit overview. HWM (Halma Water Monitoring) is a combination of 6 Halma acquisitions, ranging from 1993 to July 2019 and is a market leader in ‘digital’ water and waste water management. Its products have saved billions of gallons of water for the UK water utilities and, while its core products are used for water leakage detection, it is leading the way in smart diagnostics and preventative strategies. As we would expect from a Halma group company, its revenues are predominately guided by regulation-driven demand and have a high technology content, with high market shares guarded by defendable barriers-to-entry. This has resulted in strong growth (15% revenue and 35% profit CAGR since 2010) and high return on sales (above then Halma group average of c20%). Its prospects look strong given increasing regulatory requirements, digitalisation and further penetration into international markets. Interestingly, this is where Andrew Williams, CEO, started his Halma career 25 years ago. Forecasts and next catalyst. No new information regarding current trading was disclosed and therefore we leave our estimates unchanged (INVe FY20e PBT of £272m and EPS of 57.3p; c.10% profits growth). The next scheduled trading update is the H1 results, due on 19 November 2019. Our view on Halma. Halma has a proven business model which continues to generate revenue and profit growth, even when macroeconomic and global political uncertainties are eroding business confidence. We believe there is likely upward pressure to forecasts as we advance through its financial year, driven by FX (current rate tailwind) and acquisitions. Overall, we believe its premium valuation multiples are justified.
Good current trading. Positive organic constant currency growth continues to be achieved across Halma’s divisions, despite a tough comparative period, with Environmental & Analysis a highlight. Medical and Infrastructure Safety posted modest growth while Process Safety growth was in-line with H2’19. Halma grew in all major geographic regions with strength in the UK and USA. We note that acquisitions and FX have also enhanced growth in the period. We expect good profits progress and cash generation remains strong. This is all in-line with expectations. There has also been a number of executive board changes (please see page 2) that should help enhance the next stage of development. Positive outlook. Halma reports that order intake is ahead or the comparable period last year and also ahead of revenues, which positions it well moving into its H2 period. Additionally further acquisitions (c.£81m spent in H1) may feature in H2 given its healthy pipeline and, with our FY20e 0.5x net debt/EBITDA expectation, the balance sheet has ample capacity to fund opportunities. Our view. Halma has a proven business model which continues to generate revenue and profit growth, even when macroeconomic and global political uncertainties are eroding business confidence. We leave our estimates unchanged at this stage, but believe there is likely upward pressure as we advance through its financial year driven by FX (current rate tailwind) and acquisitions. Overall, we believe its premium valuation multiples are justified. Upcoming catalysts. Halma’s management team will host a visit to its Environmental & Analysis sector company, HWM, in Wales on 1 October 2019 while its H1’20 results are scheduled for 19 November 2019.
Halma delivered another year of record revenue and profit growth for the 16th consecutive year when it announced its FY2019A results last month. We note Halma operates in underlying markets that benefit from long-term growth drivers globally, hence the relative stability of the business model and financial performance. However, quality comes at a price. At a significant premium to the peer group, we cannot justify a buy case currently. Halma is a great quality business with high and stable operating margins across the Group and good cash conversation. On valuation grounds, we reiterate our Hold recommendation. Halma, post our revised forecasts, trades on FY2020F PER of 37.4x, EV/EBITDA of 25.1x and dividend yield of 0.8%. HOLD.
Halma, the safety, health and environmental technology group, today announced its full-year results for the year to 31 March 2019. Overall the group has made record revenue and profit progress for the 16th consecutive year and slightly ahead of our expectations which reflects the continued underlying strength in its four operating markets. Revenue, adj. PBT and adj. EPS all increased by 13%, 15% and 17% respectively to £1210.9m (Shore: £1209.8m), £245.7.m (Shore: £240.9m) and 52.7p (Shore: 50.5p) respectively whilst the full-year dividend increased by 7% to 15.7p (Shore: 15.7p). Net debt decreased from £220.3m in FY2018 to £181.7m at year-end FY2019 (net/debt 0.6x) thus, plenty of headroom in the balance sheet for further M&A and investment. Halma also continued strong progress in terms of cash conversion (88%) and investment ratios (return on sales 20.3% (+0.4pp); ROTIC 16.1% (+0.9pp)). Halma has continued to demonstrate widespread revenue growth in all major regions with the strongest performance in the USA and the UK and moderated but continued progress in Mainland Europe and Asia-Pacific. Revenue growth in all major regions’ organic constant currency basis (“occy”): USA +18%; UK +11%; Europe +6%; Asia Pacific +4%. All four sectors (Process Safety, Infrastructure Safety, Environmental & Analysis and Medical) grew revenue and adj. PBT on an occy, with three out of the four sectors delivering double-digit increases.
We said in February that be felt that Halma would outperform strongly in these challenging market conditions and that has proven to be the case. We await the analyst presentation but expect to make no material change to numbers. We increase our price target from 792p to 921p and remain at Hold.
As we have frequently stated, Halma is one of, if not the, highest quality companies in the broad industrials sector and is once again resiliently trading in line with expectations. Despite the premium valuation, we continue to feel that Halma will outperform strongly in these challenging market conditions. Hold.
As we have frequently stated, Halma is one of, if not the, highest quality companies in the broad industrials sector. This is a typical HLMA acquisition, adjacent to current expertise, funded from ongoing cash flows. We retain our target price of 792p and Hold recommendation.
As we have frequently stated, Halma is one of, if not the, highest quality companies in the broad industrials sector. We previously had a Sell recommendation, based on valuation concerns, but following the resilient interims earlier this week we feel that Halma will outperform strongly in these challenging market conditions. We increase our target price to 792p and move to Hold.
Trading in H1 has been in line with expectations. As we have said previously, valuation is always the moot point with Halma, now on a P/E of c.22.4x Mar 16, and ahead of the ratings of (equally) high quality US peers such as Danaher. We await further information at the presentation but expect to remain at Sell on valuation grounds.
This looks like a sensible complementary acquisition, adding fire suppression to existing detection capabilities. We expect to make small upgrades from FY17, but remain at Sell on valuation grounds; HLMA shares have fallen a little in recent weeks but remain expensive, in our opinion, at over 14x FY16 EBITDA.
Trading in the first 3 months of the financial year has been in line with expectations. As we have said previously, valuation is always the moot point with Halma, now on a P/E of c.22.6x Mar 16, and ahead of the ratings of (equally) high quality US peers such as Danaher. We remain at Sell on valuation grounds.
Another set of record results and a 36th consecutive year of dividend increases of 5% or more (7%). Halma is one of the highest quality UK industrials and continues to deliver. As we have said previously, valuation is always the moot point with Halma, now on a P/E of c.24x Mar 16, and ahead of the ratings of (equally) high quality US peers such as Danaher. We await the analyst presentation and expect to upgrade forecasts and our price target but expect to remain at Sell on valuation grounds.
