Halma’s Quarterly Trading Update Is Tracking Slightly Above Expectations

Narrow-moat Halma HLMA expects its full-year profit before tax to fall between GBP 353.1 million and GBP 369.6 million, which is slightly above our GBP 352 million estimate, but is not material enough to have an impact on our GBX 2,310 fair value estimate, which we reiterate. Additional quantitative details were light in the group’s third-quarter trading update. However, the group has indicated that revenue growth is strong and order intake is ahead of the prior year, evidence of the resilient nature of customer demand for Halma’s products. The U.S. and Europe were highlighted as the largest contributors to revenue growth, offsetting declines in China. Shares appear marginally undervalued.

Even if Halma manages to achieve the upper range of its guidance, it will still imply a slight drop in the group’s profit-before-tax margin from the 20.7% achieved during the previous financial year. We anticipate a 40-basis-point decline during financial 2023. While the group has done a solid job in offsetting cost inflation, the return of variable overheads, which includes research and development spending, will likely result in a lower profit margin.

2023 marks a new beginning for Halma, with Marc Ronchetti beginning his tenure as CEO on April 1 and Steve Gunning having been appointed chief financial officer in January. However, we don’t expect a change in Halma’s strategy despite its leadership changes, with bolt-on acquisitions remaining a key component of its strategy. The group has announced three new acquisitions since its half-year results, the largest being for a mere GBP 22 million consideration to complement its existing fire detection business.