To describe it as business as normal would be overstating things, but Halma’s latest update was strikingly strong. With the overwhelming majority of the safety specialist’s businesses still running, revenues and profits before tax for the year to the end of March are going to be higher than the previous year and the dividend looks safe. Debts are low and extensive funding facilities are in place. While the coronavirus pandemic will knock some of the momentum out of next year’s results, there was every indication that measures to limit costs and spending will help to cushion the blow. The company’s shares, predictably, rose today.
Of course, these times are anything but normal and the group best known for making smoke detectors said much yesterday about what it was doing to provide emergency medical equipment to the healthcare sector.
Halma began trading in Sri Lanka in 1894 as the Nahalma Tea Estate Company, before turning itself into an industrial holding company in 1956. It has expanded steadily and, with a market valuation of just under £8 billion, has been a member of the FTSE 100 for just over two years.
Everything that it does is built around the themes of safety and hazard detection. It has four divisions, the largest by revenues of which is infrastructure safety, making fire extinguishers and sensors, as well as smoke detectors. The second largest is environmental and analysis, which makes products that monitor and check the quality of water and gas. The medical division makes equipment such as blood pressure monitors, while the valves and locks made by the process safety unit are used mainly in hazardous industrial locations. Of Halma’s 43 operating companies, 41 are still in operation, in part because the majority of its business units produce critical components for use in safety and healthcare.
Intuitively, it would make sense to assume that Halma will have suffered a slowdown in orders from corporate customers fitting out offices with safety and detection equipment. It also seems sensible to conclude that the calamitous fall in the oil price will have a knock-on effect for demand for the safety equipment used on rigs. However, as it stands this seems to be more than balanced by higher demand from the healthcare sector.
Halma said yesterday that its companies were producing an array of products that are urgently sought after during the pandemic, such as parts for ventilators and diagnostics tests, and personal protective equipment. One of its businesses is making sensors for hospitals that mean that doors can open and shut automatically to avoid potential transmission.
It is reassuring that Halma has stuck with guidance it delivered just over a month ago that adjusted profits before tax for the year would be between £265 million and £270 million, against last year’s £245.7 million, on revenues also higher at about £1.3 billion. There was no mention of dividends yesterday ahead of annual results in July. That gives it wiggle room, although analysts seemed confident that the payout would still come.
All of the elements that have made Halma consistently attractive for this column, including being locked into the structural growth of demand for safety and hazard detection equipment, remain in place, possibly more so at the moment.
The shares, up 22p, or 1 per cent, at £21.13, are notoriously expensive — even now — trading for 38.6 times Investec’s forecast earnings for a dividend yield of only 0.8 per cent. In times like this, though, that premium price is a sign of the company’s quality.
ADVICE Buy
WHY Resilient business, still performing well and locked into structural growth trends in safety
Croda International
Croda International has been noticeably quiet during the past few weeks. The specialist chemicals producer has said little about coronavirus, save for a passing reference at its annual results in late February, an online customer explainer and quiet acts of generosity, such as donating glycerine for making hand sanitisers.
Under the rules, the FTSE 100 company would have to tell the stock market if anything material was happening to affect its business, but it could be that, aside from the obvious disruptions, it’s actually faring pretty well.
Croda International was founded as a factory for refining wool grease in Yorkshire in 1925 and now employs more than 4,200 staff spread across 36 countries. Listed on the stock market since 1964, Croda’s quotation values it at just over £6 billion and over the 12 months to the end of December it made profits before tax of £322.1 million on revenues of nearly £1.3 billion.
The group has three distinct divisions, each of which is likely to have had differing experiences since Covid-19 hit. Life sciences, which includes producing chemicals for crop protection, seems likely to have noticed the least change. On the face of it, the lubricants business, which represents about a third of Croda by revenues, should have suffered. About a quarter of its revenues come from carmakers, the majority of which have stopped production. However, anecdotal evidence suggests that manufacturers are stockpiling materials for when output resumes, so orders may well have held up. The most important part of Croda is its personal care division, making active ingredients for shampoos, skin creams and beauty treatments. That is likely to have done well, as consumers who cannot go to hairdressers buy additional products for grooming at home.
Croda is not due to deliver a formal update until half-year results in July, but the recent resilience of the company’s share price suggests that investors are optimistic. The shares, down 20p, or 0.4 per cent, at £46.35, change hands for a rich 27.7 times Liberum’s forecast earnings for a dividend yield of 1.9 per cent. They are well worth holding.
ADVICE Hold
WHY Richly valued, but likely to be trading well in the crisis
