Resilient and diverse
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.
06 May 20
The weakest link?
Given the current and rapidly evolving situation around COVID-19, near term trading can seem somewhat uncertain across most industries. So, we look to focus on the balance sheet with regards to leverage, liquidity and solvency positions across the industrial sector. We also provide information on financial headroom and covenants. Companies discussed are the following, AB Dynamics^, Bodycote^, Diploma^, DiscoverIE, Flowtech Fluidpower^, Fulcrum Utility Services^, Halma^, IMI^, Judges Scientific^, Mpac^, Oxford Instruments^, Porvair^, Renew^, Rotork^, Spectris^, Spirax-Sarco^, Strix^, Trifast^, Vitec^, Weir^ and Quartix^.
HLMA ABDP FLO FCRM JDG MPAC OXIG PRV RNWH ROR SXS SPX KETL TRI VTC WEIR QTX
14 Apr 20
Quality comes to the fore
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.
08 Apr 20
Investor event; upgrade to Buy
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.
09 Mar 20
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.
04 Jul 19
FY2019 results; record revenue and profit for the 16th consecutive year.
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.
11 Jun 19
LIBERUM: 2018 Outlook – Finding Value: Stocks and screens for 2018
Our proprietary models suggest continued strength in the labour market, a halt in the mortgage approvals decline and more encouraging signs for H1 GDP (p22). We note momentum in the economy likely resumed in Q4 (p27). Signs of Brexit clarity should also help reduce market uncertainty (p30). Our key concern remains anchored around household cash flow and consumer credit, where we see little relief and subsequently continued pressure on consumer spending (p23).
HLMA BBY GNK ITV LAND MGAM OSB TCAP UTG ZPG AAL BDEV DEB DGE DOM HL/ PETS PFG PSON GFRD
18 Jan 18
Results in line; outlook positive
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.
14 Jun 16
Abzena (ABZA LN) FY results in line, outlook strong | Eckoh (ECK LN) Breakthrough year in the US | Findel (FDL LN) In line results and positive momentum in EGL | Halma (HLMA LN) Results in line; outlook positive | Trifast (TRI LN) Strong FY16 growth, good prospects for FY17
HLMA ABZA ECK STU TRI
14 Jun 16
Trading in line, again
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.
11 Feb 16
Acquisition of CenTrak
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.
05 Feb 16
Upgrading price target and 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.
19 Nov 15
Trading in line
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.
17 Nov 15
Complementary fire acquisition
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.
06 Oct 15
Avon Rubber (AVON LN) Strong end to the year to drive forecast upgrade | Brewin Dolphin Holdings (BRW LN) Weakness presents buying opportunity | Gooch & Housego (GHH LN) FY15 trading in line with expectations | Greggs (GRG LN) Another solid update supports upgrades | Halma (HLMA LN) Complementary fire acquisition | Liontrust Asset Management (LIO LN) Impressive inflows in weak markets | St Ives (SIV LN) Prelims slightly ahead, dividend +9% | Telford Homes (TEF LN) Well positioned in the London mid-market
HLMA AVON BRW GHH GRG LIO KCT TEF
06 Oct 15
Q1 trading in line
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.
23 Jul 15
Solid results, positive outlook
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.
11 Jun 15