Halma PLC
Halma PLC (LON: HLMA) is an FTSE 100 Index listed Group of life saving technology companies. It has a presence in the UK, Europe, the USA and Asia Pacific.
The company expects to release its results for the full-year ending 31 March 2022 on 16 June 2022.
Investment Rationale for Valuation – Buy at GBX 2,214.00
- Acquisition: As per an announcement on 14 April 2022, the Group has acquired Deep Trekker Inc., which is headquartered in Ontario, Canada. The acquisition complements the Group in pursuing a cleaner environment, and in improving the safety of underwater inspections. The transaction is for a cash consideration of Can$60 million and will be funded from Halma’s existing facilities.
- Trading Update: On 23 March 2022, the company has provided a trading update for the period 1 October 2021 to date. It expects to deliver a substantial improvement in revenue in H2FY22, driven by strong order intake.
- Financial Position: The company has maintained a decent financial position with solid cash generation, in addition to investments for organic and inorganic growth.
- Technical Indicator: The price of the stock is hovering near the lower Bollinger band with low 14-day RSI level of ~31.79.
Key Risks
- Operational Risk: The company is exposed to risks from supply chain, logistics, and labor market disruption coupled with economic downturn during macro events.
- Synergy Risk: The Group depends on acquisitions for growth and it can lead to the risk of absence of synergy from operations, thereby adversely impacting the Group’s profitability.
Financial Highlights (for the 6 months ended 30 September 2021, as of 18 November 2021)
(Source: Company Website)
- Revenue: Revenue grew by 19% to £737.2 million in H1FY22, compared to £618.4 million in H1FY21.
- Debt Position: There has been an improvement in net debt position to £280.2 million as of H1FY22 end, compared to £315.0 million during the prior corresponding period end.
One Year Share Price Chart
(Source: REFINITIV; Analysis done by Kalkine Group)
Valuation Methodology: Price/Cash Flow Approach (FY23E)
Conclusion
The company has maintained a healthy acquisition pipeline across its three sectors. It has also increased its strategic investment in talent, product development, IT, and cybersecurity in view of growth in the long run.
The stock made a 52-week high and low of GBX 3,270.00 and GBX 2,151.00, respectively.
Based on the decent fundamentals, inorganic growth, healthy acquisition pipeline and support from the valuation as done using the above method, we have given a “Buy” recommendation on Halma PLC at the current market price of GBX 2,214.00 (as on 10 May 2022, 08:14 AM GMT+1) with lower double-digit upside potential based on 32.43x Price/NTM Cash flow (approx.) on FY23E cashflow per share (approx.).
Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
HLMA is a part of Kalkine’s Global Big Money Report portfolio.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
Note 3: Dividend Yield may vary as per the stock price movement.
Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.
Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.
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