ii view: Halma reports yet another year of record profit

This health & safety company has raised the dividend for 42 consecutive years. Buy, sell or hold?

Full-year results to 31 March 

• Revenue down 2% to £1.32 billion
• Adjusted pre-tax profit up 4% to £278 million
• Final dividend of 10.78p per share
• Total dividend up 7% to 17.65p per share
• Net debt down 32% to £256 million

Guidance:

• Expects full-year low double-digit percentage organic constant currency profit growth

Chief executive Andrew Williams said:

“Our progress has also been supported by our teams' relentless execution across all parts of our business, and our resilience which stems from the diversity of our market niches, their fundamental growth drivers, and the value of the solutions we provide.

“For the year ahead, we expect our markets to continue to recover, albeit at varying rates, while acknowledging that there are potential headwinds including currency, inflation, and supply chain constraints.”

ii round-up:

Life-saving product maker Halma (LSE:HLMA) today reported a record profit for the 18th consecutive year, having forecast a profit fall at the onset of the global pandemic. 

Helped by a return to sales growth over the second half of its financial year, adjusted pre-tax profit rose by 4% to £256 million. The total dividend for the year rose by 7% to 17.65p per share, making for a 42nd consecutive annual increase of 5% or more. 

Halma shares fell by around 1% in UK trading, having gained by more than 55% since pandemic induced market lows back in March 2020. That’s ahead of a near 50% gain for the UK FTSE All Share index. 

Halma’s safety technologies protect and save lives, allowing the safe movement of people in public areas along with protecting both assets and infrastructure across the workplace. Its medical devices enhance people’s lives while the environmental business helps improve food, water, and air quality.

Accompanying management outlook comments pointed to a good start to the year, with order intake running ahead of revenue and up on the same time last year. It currently expects to deliver a low double-digit percentage gain in adjusted profit growth.

A good pipeline of potential acquisition opportunities is currently seen. Transactions were suspended during the first half, given pandemic uncertainty. In the second half, Halma bought Static Systems, a UK-based manufacturer of critical healthcare communication systems and sold Fiberguide Industries, a US-based manufacturer of fibre optic technology. 

Statutory pre-tax profit including a £21.6 million gain on the sale Fiberguide rose 13% to £252.9 million. 

ii view:

Halma is a business which has developed a reputation for steady growth. Safety products generate its biggest chunk of sales, followed by medical devices and finally environmental and analysis related products. In geographical terms, the US is its biggest revenue generator at nearly two-fifths of overall sales. Halma customers include utility companies, healthcare providers, commercial and public buildings, and energy and resource corporations. 

For investors, some ongoing Covid related caution looks sensible given its exposure to industries such as oil & gas. An estimated forward price/earnings (PE) ratio comfortably above the three and 10-year averages also continues to suggest that the shares are not obviously cheap. But quality and consistent growth do not come cheap. Net debt is down and the dividend up again. In all, and against a tough backdrop, Halma has again demonstrated its strong defensive qualities, with its place in a diversified, long-term focused portfolio remaining justified. 

Positives: 

• Diversity in both products and geographical sales 
• Robust financial position

Negatives:

• Pandemic remains ongoing
• Valuation not obviously cheap

The average rating of stock market analysts:

Strong hold