There’s that old saying; ‘you pay peanuts, you get a monkey.’ It can work the other way round too, if you pay a fortune, you likely to get good, er, fortune?
This is a slightly clunky way of explaining why investors have been buying shares in the now FTSE 100 firm Halma (HLMA) in spite of the stock’s hefty current year (to 31 March 2019) price to earnings multiple (PE) of around 29.
Halma is a global manufacturer and seller of a wide range of equipment largely demanded by health, safety and environmental rules. This includes items such as hazard detectors, contamination sensors and assorted environmental protection kits.
Organic growth is supplemented by carefully selected bolt-on acquisitions. Halma is very careful in how it chooses its business areas, seeking resilient growth drivers based on advances in safety regulations, ageing and urbanising populations, and other demographic trends.
HALMA DOES IT AGAIN AND AGAIN
It is a business approach that simply works year after year, as today’s trading update indicates. While light on financial detail investors are told that Halma is bang on track to meet expectations this year, encouragingly thanks to widespread robust business levels on both a divisional and geographic basis.
Medical and environmental is said to have delivered particularly ‘strong growth.’
Investors are buying in today’s trade, nudging the share price a modest 1% to 1.5% higher to £14.35. That’s just a fraction off the stock’s best ever £14.56 hit in June.
‘Cash generation remained strong and sates its continued investment in growth, both organically and by acquisition,’ say analysts at broker Shore Capital this morning.
Halma is a company with an almost unbroken record of rising revenues, profits and dividends that stretches back decades. For that sort of reliability investors must expect to pay a premium?. And they are (largely) clearly happy to do so.
