Halma interims

Designs, manufactures & markets equipment for process safety, infrastructure safety, medical and environmental & analysis.  Typical products include - fire detectors, gas detectors, water treatment systems, ophthalmic instruments and machine safety systems.  I have a holding in my income portfolio (epic code: HLMA).

Halma reported their interim results today with revenue for the half year up by 2.4% to £341m, although organic revenue growth at constant currency was up by 4%.

Adjusted profit before taxation increased by 6% to a record level of £69.0m, with organic constant currency profit growth of 7%.  Adjusted EPS increased by 8.2% to 14.05p and the diluted EPS was 12.56p up 11.4%.

Organic revenue growth by geographic destination was:

USA                               +7%
Mainland Europe           +1%
UK                                 +2%
Asia Pacific                   +2%
Other                             +9%

No surprise here that the worst performing area was Mainland Europe.

Organic revenue growth by division was:

Process Safety                    +8%
Infrastructure Safety           +6%
Medical                               +4%
Environmental & Analysis  -2%

One of the reasons for the negative performance in Environmental & Analysis was lower demand from the UK water utilities, due to the final year of their five-year investment cycle.  Management expect this market to pick up during 2015.

An interim dividend of 4.65p was declared an increase of 6.9% over last year and in line with the 5 year compound growth in the pay-out of 7% pa.

Free cash flow continues to be strong at £47.6m compared to £44.6m last year.  During the period they paid out £25.8m on dividends and £82.9m net on acquisitions/disposals, which had the result of increasing net debt from £74.5m at the year-end to £136.3m (gearing of 27%).



Commenting on the outlook management stated that "...Order intake since the period end has continued to be ahead of revenue and order intake last year. Halma remains on track to make further progress in the second half of the year in line with our expectations..."

That all looks very positive and Halma look set to achieve market expectations of 30.3p and a full-year dividend of 11.98p.  Although, at today's price of 651p (up 2.7%), that places the business on a high earnings multiple of 21.5x and a yield of just 1.8%.  This is the reason they represent just 2.5% of my income portfolio, the quality of the business, the momentum of earnings and dividends might suggest a higher proportion, but there is just too little value here.  A general market correction in the future may produce a buying opportunity, but until then it is a reluctant hold - which does sound strange for such a high quality business.