Halma is not the most headline-grabbing name in the FTSE 100. In fact, despite the £9.6 billion group delivering a total return of 21 per cent to its shareholders in the space of just one year, it has managed to keep a relatively low profile.
A group of nearly 50 small to medium-sized companies which specialise in various safety technologies, it has been listed on the London Stock Exchange since 1972 and joined the FTSE 100 index in 2017. Most of its revenues come from outside of the UK — £895 million of its £2 billion in annual sales for its 2024 financial year was from the United States.
The group, which is based in Amersham, Buckinghamshire, presides over companies that fall into one of three areas. The largest is safety, which covers products such as fire detection systems, smoke detection and lift safety products. The second is healthcare, which includes devices that check eye health. This is followed by environmental and analysis companies, such as water quality testing.
In the case of Halma, boring is beautiful. This collection of businesses specialises in niche, highly regulated markets, where there is a high barrier to entry, while a focus on profitable, growing and specialised fields gives Halma a defensive edge.
Indeed, the company has combined growth from its existing business and a targeted acquisition strategy to grow annual adjusted pre-tax profits by more than 60 per cent compared with five years ago. It also invests heavily in research and development to create new products: each company decides how much it spends on R&D, but the group as a whole aims to spend at least 4 per cent of sales this way. It has consistently exceeded 5 per cent in recent years.
One of Halma’s other ambitious aims is to double its earnings per share every five years. This is no mean feat — while it has grown at an impressive pace, basic earnings per share stood at 71p in its 2024 financial year compared with 45p in 2019. Adjusted earnings per share rose by a solid 8 per cent, below its target of 10 per cent, though this was 12.5 per cent on a constant currency basis.
Growth in adjusted earnings per share over the past five years has averaged 9.5 per cent, just shy of its target. Still, a 13 per cent compound annual growth rate in earnings per share since 2005, according to analysis by the broker Berenberg, and 43 years of continuous dividend increases is nothing to sniff at.
Halma has good form for finding new businesses to add to its portfolio, too. It funds its acquisitions through its strong cash generation, with a conversion rate of 103 per cent as of the end of March. Even with its multiple acquisitions, it has a net debt to earnings before interest, taxes, depreciation and amortisation ratio of 1.35 times, well below its operating range of up to 2. Meanwhile, its return on invested capital came in at a healthy 14.4 per cent in its latest financial year, comfortably above its weighted average cost of capital at 9.7 per cent.
Shares in Halma have risen by 15 per cent this year, and as such do not come particularly cheap, trading at roughly 29 times forward earnings. However, this is at a discount to its five-year average of 36. Halma describes its purpose as to provide a safer, cleaner and healthier future — all of which is backed by broader trends of population growth, urbanisation and digitalisation.
The group should be able to maintain its momentum of targeted acquisitions, having spent more than £600 million on buying new companies in the past couple of years, and management has hinted that its M&A pipeline is healthy across all three of its sectors. Given these long-term growth drivers, as well as the defensive, high-quality nature of the business, the price tag on Halma’s shares does not look unreasonable.
Advice Buy
Why Defensive, high-quality asset at a decent price
CVC INCOME & GROWTH TRUST
DIY investors may be familiar with the name CVC, given that the private equity firm has just agreed to buy Britain’s biggest investment broker, Hargreaves Lansdown. The curious among them may have even stopped to consider the firm’s small investment trust on London’s market — CVC Income & Growth.
The fund, which listed in 2013 and controls about £222 million in assets, invests in CVC’s European Credit Opportunities fund in Luxembourg. It buys non-investment grade, high-yield debt of large corporate borrowers — in other words, debt that has been deemed risky by big rating agencies such as Moody’s, S&P or Fitch.
Just under a quarter of its portfolio is invested in the UK, followed by 20 per cent in the United States, 13 per cent in Germany and the remainder spread across Europe. It has good diversification across industries too, with 17 per cent in healthcare and pharmaceuticals, followed by 9 per cent in beverages and food, as well as exposure to chemicals, business services and others.
The trust’s portfolio is split between “performing credit”, where companies meet their loan repayments as they improve their ratings, and “credit opportunities”, where the fund aims to buy undervalued debt ahead of an event such as refinancing or a rating upgrade. Most of the fund’s portfolio must also be in “senior secured” loans, which means they must have assets set aside as collateral. As of the end of June, 82.1 per cent of the portfolio was in senior secured assets. Just under 84 per cent of the fund is in floating-rate loans, which means the interest it earns from these changes based on market rates.
The fund’s official aim is to focus on preserving its investors’ wealth rather than growing it quickly, and to generate a high cash income with an attractive dividend. It has certainly achieved this last aim, with its quarterly dividends supporting a yield north of 8 per cent. This may decline as interest rates fall but should be offset by the floating-rate loans in the portfolio. Still, given the complex nature of the assets it holds, CVC Income & Growth may be better suited to more seasoned investors.
Advice Hold
Why High yield but complex assets