Halma looks ready to shift up a gear

ONE OF the most remarkable UK growth stocks, which I have often recommended in the past, is Halma, now at 184p. Given the past record there has never been a wrong time to buy the shares - they always grind remorselessly higher. But now could be a timely moment. The shares have marked time for more than two years and look ready to move ahead again.

Halma has sustained compound growth in earnings per share at a phenomenal average of 26 per cent since 1972. An investor who bought pounds 10,000 worth of shares in Halma at the low point in 1974 would now have shares worth an incredible pounds 7.6m and an annual dividend income of nearly pounds 90,000.

Despite its growth Halma is still a comparatively small company with sales and pre-tax profits of pounds 154m and pounds 29.2m respectively last year. This leaves it plenty of room to grow further; especially since more than 60 per cent of sales are into overseas markets. The group is actually a collection of businesses with 45 different subsidiaries covering many product areas, each with its own, autonomous management. Out of a total workforce of 2,500 around 180 are directors of subsidiaries.

The group is primarily a manufacturing operation with each of its companies a market leader in a profitable niche area. The biggest subsidiary, Apollo, makes fire detection equipment and has grown dramatically since it was acquired in the early 1980s after repaying its purchase price in just three years.

Acquisitions play a key supporting role in the group's growth with a regular flow of moderate-sized deals. These deals, which are almost invariably financed out of cash flow, either strengthen existing subsidiaries or take the group into new areas with the same niche-dominant high-return characteristics.

Latest interim figures showed a 15 per cent increase in pre-tax profits and, with many opportunities beckoning for the group, prospects look excellent.

Investors in search of a new Halma should look at another of my favourites, Serco at 493p. It has the same growth potential, though it is a very different company. Sales, profits and earnings per share have grown at a 20 per cent-plus compound rate for more than a decade with more to come.

A specialist in facilities management and systems engineering, Serco is a service rather than a manufacturing business but shares with Halma a strong management culture. At first sight the group seems to be a confusing hodgepodge of activities with responsibilities ranging from maintaining the park at Kensington Gardens to looking after Britain's four-minute warning system against nuclear attack. But chief executive Richard White argues that the group's specialisation is in outsourcing almost any activity. He describes this as introducing competitive disciplines to what otherwise - whether as a government department or an internal part of a company - would be a monopoly supplier.

As an example he cites the group's recent bid to manage the water and sewage facilities for Melbourne, Australia, a city of two million people. Serco had no previous experience of managing such installations and was up against civil engineering specialists. Nevertheless it won the largest of three contracts accounting for more than half the total. The group argues that it does not need specific technical expertise because the people come with the contract. It then spent three months persuading the unions to swap all their overtime arrangements for a higher salary. It has immediately become the most efficient service provider because its staff no longer have the incentive to work slowly in normal hours to boost overtime.

Serco's other great strength is its accumulated experience and reputation for handling hi-tech facilities. This comes from its original contract to run the base at RAF Fylingdales - a contract that has been retained for more than 30 years despite regular re-tendering. The group rarely loses contracts and is good at winning new ones. Over the past year it has won more than pounds 500m worth of work in the UK and pounds 150m in the Far East.

It is also becoming a one-stop shop on contracts, for example in traffic control, where it has the capability to design, install and maintain systems such as the variable speed control system on the M25. Mr White believes there are huge opportunities worldwide. The group is not growing even faster than the 21.6 per cent pre-tax profits increase achieved with the 1995 results because it targets a growth rate that it is confident of being able to service adequately.

Start your day with The Independent, sign up for daily news emails
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?