UBS ups Halma to 'neutral' amid improving end market signals

Halma got a boost on Thursday as UBS upgraded its stance on the shares to 'neutral' from 'sell', upping the price target to 2,060p from 945p as it pointed to improving end market signals and M&A growth.

"Our upgrade is driven by 1) improving end-market signals resulting in increased organic growth to 7% from 6%, and 2) M&A growth of 4% (in-line with LTA) from a 0% scenario."

The bank said that with the share price up around 40% year-to-date, short-term risks are skewed to the downside at current levels, but fairly reflecting the long-term growth potential. UBS said the stock is currently pricing 8% implied long-term growth.

The bank said it was lifting its forecasts for Halma to generate growth from M&A to 4% from 0% between 2020 and 2025, which is in line with other companies in its coverage such as Assa Abloy and Hexagon.

"In our view, consensus average sales growth of circa 6% for 2020e–2022e underappreciates the potential upside from M&Am" it said. UBS added that its current earnings before interest, tax and amortisation estimates are 8% higher than 2022 consensus estimates.

At 1520 BST, the shares were up 2.3% at 2,029p.