Full-year results from the Human Screen

How do investors love Halma? Let me count the ways…  Consistently high profitability, relentless dividend growth, forty businesses resting on strong finances, and dominant niches in fairly obscure industries.

2012 Highlights

• Adjusted operating profit up 15%
• Return on tangible assets: 38%
• Adjusted net profit of ''92m compared to net cash flow of ''98 (''84m after net capital expenditure)
• Net debt down 50% at ''19m, 6% of tangible assets (not including pension deficit of ''32m and operating lease commitments of ''27m)
• Per-share dividend up 7%

The Human Screen comments:

What is it that investors love about Halma? Probably the consistently high profitability, relentless dividend growth (5% or more per year for over 30 years), the flexibility that enabled it to survive nationalisation in Sri Lanka sixty years ago and transform itself from a rubber plantation. It’s mastered the art of acquisition, running forty engineering companies resting on the hidden champion foundations of strong finances, and dominant niches in fairly obscure industries. When those businesses have mined their niches, it lets them go, always staying in the fast-lane.

Halma must have decided that counting cash is no longer the business it was because it sold Volumatic last year, which manufactures cash counting machines, and has made five acquisitions since last summer, four of them in its Health and Analysis division, which makes medical and environmental devices.

Being contrarian, the Human Screen is offended by Halma’s relentless progress, and in particular the targets it confidently sets (to double revenue and profit every five years) and then achieves. While admirable, he thinks it’s dangerously seductive.

The Human Screen can hear the sirens calling, but he’s clinging on to Halma’s pricey valuation, an unlevered post-tax earnings yield of just 6%, to lead him away from temptation.

^HS+ (worth watching for improvement in price)