Halma is an ex­cel­lent busi­ness trad­ing at a more at­trac­tive price

Few com­pa­nies can ri­val this com­pa­nies track record of rev­enue, profit, cash flow and div­i­dend growth

Shares - - GREAT IDEAS SPECIAL -

Pe­ri­ods of in­dis­crim­i­nate mar­ket weak­ness are typ­i­cally good times to pick up qual­ity busi­nesses at a more at­trac­tive price. Down more than 14% since the re­cent mar­ket wob­ble, health and safety prod­ucts spe­cial­ist Halma

(HLMA) un­doubt­edly fits the bill as a top-notch stock to buy now.

The FTSE 100 mem­ber has a very good track record of grow­ing rev­enue, profit, cash flow and div­i­dends. In June it re­leased re­sults which marked 15 con­sec­u­tive years of record rev­enue and profit and the 39th con­sec­u­tive year it had hiked the an­nual div­i­dend by 5% or more.

The rea­son Halma’s shares have been so heav­ily sold off in the past few weeks is prob­a­bly con­cern about val­u­a­tion. The

shares were trad­ing on more than 30 times March 2019 earn­ings ahead of the mar­ket cor­rec­tion. Now at 25.9-times it is trad­ing at a more mod­est pre­mium to its rough earn­ings mul­ti­ple of 22 from four years ago, since which the shares have more than dou­bled.

Buck­ing­hamshire head quar­tered Halma makes, and sells glob­ally, a di­verse range of equip­ment re­quired to meet reg­u­la­tions on health, safety and the en­vi­ron­ment. This can en­com­pass ev­ery­thing from haz­ard de­tec­tors to en­vi­ron­men­tal pro­tec­tion kits and sen­sors.

FOREN­SIC FO­CUS ON THE RIGHT MAR­KETS

The com­pany bol­sters or­ganic growth with se­lect ac­qui­si­tions and foren­si­cally tar­gets mar­kets which ben­e­fit from de­mo­graphic trends like age­ing pop­u­la­tions and/or stricter safety rules. The com­pany’s own lan­guage around its busi­ness model is re­fresh­ingly sim­ple.

Its ob­jec­tive is to dou­ble ev­ery five years. ‘We aim to achieve this through a mix of ac­qui­si­tions and or­ganic growth. Re­turn on sales in ex­cess of 18% and re­turn on cap­i­tal em­ployed over 45% en­sure that cash gen­er­a­tion is strong enough to sus­tain in­vest­ment for growth and in­crease div­i­dends with­out the need for high lev­els of ex­ter­nal fund­ing,’ says the com­pany.

Un­der its Halma 4.0 strat­egy, it is also buy­ing up qual­ity niche busi­nesses which it can help de­velop within the group.

As­sum­ing half year re­sults on 20 Novem­ber are the usual model of con­sis­tency then we would ex­pect the shares to start re­cov­er­ing. Even if they don’t move up much, we still think this is an out­stand­ing busi­ness to buy and hold for the long term.

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