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MIDAS SHARE TIPS: Looking for a flow of profits, then try Halma

When David Barber took over at Halma in 1972, it was a shell company, listed on the London Stock Exchange but doing very little. Barber liked that. He had plans for this former tea plantation company, founded in Victorian times in Nahalma, Sri Lanka.

Barber was determined to create a company that would deliver long-term benefits by acquiring private companies in two sectors, industrial safety and environmental monitoring. He would choose these acquisitions carefully, let them operate independently, but offer financial and operational support along the way.

Crucially, he would also ensure that the companies generated enough cash so that Halma could acquire more companies without constantly looking to banks or shareholders for more capital.

Income from the tap: Halma's HWM division serves thousands of automatic sensors that warn water companies of leaks

Income from the tap: Halma’s HWM division serves thousands of automatic sensors that warn water companies of leaks

Barber passed away earlier this year, but the approach he envisioned 50 years ago continues to this day, under the steadfast leadership of Andrew Williams.

Williams was only 26 when he joined Halma in 1994. He quickly rose through the ranks and took over as chief executive in 2005, when the company generated revenues of just under £300 million a year and profits of around £50 million.

The company has grown rapidly since then, reporting sales of over £1.5 billion and profits of £316 million in the year to March 2022, its 19th record year. Williams also announced a 7 percent dividend increase to 18.88 pence, the 43rd straight year with dividend growth of more than 5 percent.

Despite these progress, Halma shares have fallen nearly 30 per cent to £22.37 in the past year, amid concerns about the impact on the group of an economic slowdown and supply chain shortages. The decline seems exaggerated.

Halma continues to focus on acquisitions in the safety and environment sectors, but healthcare has been added to this, and the company now sees itself as a specialist in the types of products that make the world safer, cleaner and healthier. The group owns 43 companies across the UK, continental Europe, the Americas and Asia. Some of these companies have been with Halma for decades, including water leak specialist HWM, which Williams joined in the 1990s.

Water detection was still manual and rudimentary at the time. Today, HWM has become a world leader in automated leak detection, with thousands of advanced sensors sending instant signals to water utilities notifying them of problems in the pipes.

Companies can’t tackle every leak even if they wanted to, at least in part because it would cause complete chaos on the roads. But HWM’s technology allows companies to prioritize the pipes to be repaired and ensure that water pressure is maintained, which is a must when fires need to be extinguished. Other companies include the Belgian group BEA, whose technology allows doors to open and close automatically, from shops to parking garages to office buildings.

And Halma also owns the Swiss group Medicel, which makes special devices used to inject new lenses into the eye during cataract surgery.

These companies are very different, but in almost all cases Halma encourages them to expand geographically and gives them the financial firepower to invest in research and development so that they can stay ahead of the competition.

Under Williams’ leadership, there has also been an increasing emphasis on business collaboration. Group meetings take place every year and the Halma Hub allows managers from different companies to ask questions and exchange ideas.

Recently, for example, Wolverhampton-based Fortress Safety struggled to find staff on the shop floor. The safety valve and switch specialist decided to offer employees a four-day work week and then advertised that employees could come from Friday to Sunday.

The move was well received by both existing and new employees and other Halma firms are likely to follow.

Buying the right companies is critical to Halma’s success and the company sees approximately 500 opportunities at any given time, some of which will operate independently and some will merge with existing companies in the group.

Only four or five of these potential deals are realized each year – well-run companies eager to be part of a larger, well-funded group.

Most companies remain part of Halma for years, but Williams also sells companies when they no longer fit in the portfolio, with an average of about one company being divested per year.

After nearly 18 years at the top, Williams is making his own exit, leaving Halma next year. But his successor has already been named, financial director Marc Ronchetti.

The duo have been working closely together since Ronchetti joined the group in 2016 and brokers are confident he will be a strong and safe pair of hands.

Midas verdict: The economic conditions are troubling, but Halma operates in sectors that are better than many at navigating choppy waters. The track record also speaks volumes about Halma’s resilience. Midas first recommended the shares in 2008 at £2.06. They’ve grown tenfold since then, but at £22.37 they remain a long-term purchase.

Traded on: Main market ticker: HLMA Contact: halma.com or 01494 721111

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