You wouldn’t describe Halma as humble: the FTSE 100 constituent says the 45 firms that it encompasses are “heroes”, and it styles itself as “a global group of life-saving technology companies focused on growing a safer, cleaner and healthier future”.
Halma has certainly been heroic for investors. The engineering conglomerate — whose products span gas detectors and water purifiers, blood pressure monitors and smart motorway sensors, and robots maintaining offshore wind farms — is on track for a 20th consecutive year of profit growth in 2023. Shareholders have shared in the success via dividends that have risen by 5 per cent or more for the past 43 years. Analysts at Berenberg bank describe Halma as “the best kind of predictable”.
Yet wider sector concerns have hit the group’s shares, which plunged almost a third in 2022. Although the trend has reversed somewhat in the past month — with the stock now trading at £21.21, up 7 per cent on the start of the year — Halma still looks a decent-value defensive stock. The shares are trading at a price-to-earnings ratio of 29, which isn’t cheap but is lower than its five-year average of 34.
Halma can also point to its relative strength in a downturn: its products — in safety, the environment and healthcare — are mostly used in highly regulated industries where the impact of recession can be shrugged off.
The City has been sniffy about industrials of late, mostly over concerns that orders will fall from record highs as supply chains get back to normal. But Halma’s order book is strong, and it is highly cash generative and very profitable. Revenues rose by a fifth to £876 million in the first half of the year, with almost 10 per cent organic growth. Analysts forecast that Halma will double earnings in five years.
Historically, an economic slump has also offered opportunities for the group to snap up sound businesses that may not be big enough to weather the storm. In just the last quarter of 2022, it spent £138 million on IZI, which makes biopsy and radiology equipment, and £50 million on Weetech, which makes electrical safety-testing tech.
There is slight uncertainty at the helm — Halma’s long-standing chief executive, Andrew Williams, is retiring in April. However, the group has set out a predictably smooth succession plan, with finance boss Marc Ronchetti set to become only Halma’s fourth chief executive in 50 years. He has large shoes to fill to maintain what Investec analyst Scott Cagehin describes as the group’s “relentless delivery” for investors. But Halma makes critical products, which promises huge growth. Buy.
