Halma boosted by Barclays upgrade

Halma got a boost on Friday as Barclays upgraded its stance on the stock to ‘overweight’ from ‘equalweight’ and lifted the price target to 1,150p from 1,070p.

The bank noted Halma’s shares have pulled back 20% from their October 2016 high of 1,126p, driven by the rotation out of low volatility ‘bond proxy’ stocks combined with mildly disappointing interim results and an unforgiving valuation.

Barclays said the pullback in the shares and the rotation within the sector towards more cyclically-exposed stocks, leaves them trading on a 12-month forward price-to-earnings ratio of 21.9x the bank’s current estimates, representing a 13% premium to the UK capital goods sector average. This compares with their five-year average premium of 30% and 10-year premium of 22%.

“This is the best sector relative value that the shares have offered for nearly two and a half years (since August 2014). We admire Halma for its consistent, long-term record and therefore view this as a good opportunity to gain exposure to it and upgrade our rating from equalweight to overweight.”

Barclays said Halma’s interim results were slightly disappointing, mostly due a poor first contribution from its largest two recent acquisitions. This was due to delays in gaining customer approval prior to shipment of a major contract at Firetrace and subsequent shipments on one of CenTrak’s major contracts suffered postponement due to third-party delays.

“We view both these issues as temporary,” said Barclays, adding that the outlook at Process Safety should be improving.

At 0956 GMT, the shares were up 5.5% to 976.50p.