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Berenberg ups target price on 'impressive' Halma
Halma's last set of full-year results marked the 15th consecutive year of record revenue, EBIT and earnings per share, and despite the firm's dividend moving into its 39th consecutive year of growth above 5%, the standout metric to analysts at Berenberg was the group's 10% organic growth, nearly double the broker's forecast of 5.2%.
After hosting members of Halma's board, including chief executive Andrew Williams, for a sales teach-in last week, Berenberg left "as confident as ever" on the medium-term opportunities at the technology group, in terms of both sustainable organic growth and acquisition opportunities.
Berenberg felt Halma's management appeared to be bullish on further M&A opportunities and portfolio optimisation, something the broker noted that, despite the group showing strong organic growth, in order to sustain its "impressive" historical EPS compound annual growth rate of 13%, the firm would need to execute "larger and/or more frequent acquisitions".
"Our analysis suggests this is comfortably achievable over the medium term with c£1bn of investment required through to 2024. However, management's bullish tone on Tuesday has given us greater confidence," the broker said.
For investors concerned at the potential loss of control that could come with the growth of Halma, Berenberg explained how management had pointed to the optimisation of its portfolio executed over the past decade.
Thus, at present Halma had roughly 40 operating companies, a number that has not really changed in over a decade, and, although they are now larger, the span of control had "not greatly increased" and its "decentralised business model" of "mini-Halma's within Halma" would continue to ensure accountability - without the loss of entrepreneurship.
Berenberg reiterated its 'buy' rating on Halma and increased its price target from 1,410p to 1,570p.