Investment Column: Halma's premium valuation is deserved

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The Independent Online


Our view: hold

Share price: 418.5p (-8.2p)

When you're at work there's a good chance that equipment made by Halma, one of those under-reported British success stories, is what will keep you safe.

If you invest your money with the company, that should be pretty safe too, at least if the business continues down the path it has taken.

We tipped Halma, which provides a wide range of safety equipment including hazard detectors and sensors, as a buy at 275.5p in June. Since then, the shares have been rock-solid performers, more than justifying our faith.

The company's recent results provided further evidence of a business in rude health. Profits were up a fifth at £98m on revenues of £518m, up 13 per cent, while the dividend was raised by 7 per cent. Yesterday saw Halma sealing a £5.6m deal to buy Avo Photonics, a US company that makes advanced, miniaturised photonic components and will join Halma's health and analysis operations.

The company has promised more deals, but this shouldn't worry shareholders – it has focused on profitable, largely privately owned firms that can complement and enhance existing Halma businesses. Big, transformative transactions beloved of fee-chasing investment bankers, and few others, are not on the agenda.

With a rapidly growing Asian franchise – where fast-growing economies are increasingly paying heed to worker protection along Western lines – the signs all look good.

Trouble is, the market has well and truly woken up to the stock's attractions. In fact, at 15 times forecast full-year earnings, it now trades at a significant premium to its sector. Moreover, that premium is rising.

But while taking profits might be tempting, we think that would be a mistake. While the shares are probably fairly valued, Halma's fundamentals are solid, it has good growth prospects and its track record justifies a higher valuation than its peers'. This one will pay off for those who keep hold over the long term.


Our view: speculative buy

Share price: 14.5p (+0.25p)

Bglobal's share price has been under the cosh recently, and on the face of it you might ask why.

After all, the company yesterday announced that revenues for the year ending 31 March had more than doubled to £29m while an adjusted pre-tax loss of nearly £500,000 in the preceding year had morphed into a healthy £3.8m profit.

The issue is that this profit is likely to be a high point, at least for the next couple of years.

Bglobal provides smart energy meters. These are a good idea – they make the sporadic, and sometimes inaccurate, meter readings that consumers are used to a thing of the past.

Naturally, since being presented with such a no-brainer, the Government has been dragging its feet. A nationwide roll-out is now targeted for 2014 but analysts fear more delays. Which means energy providers have put their own plans on hold, making life difficult for Bglobal.

Happily, with efforts to bring new entrants into the energy market, there is an opportunity for the company to jump in and offer services such as billing, data collection, and the like.

It has already helped Co-op into the market and others could follow. Backing the shares now is risky, but they're cheap and the company is financially strong, with £4m in net cash at the bank. One for investors willing to speculate.

Dechra Pharmaceuticals

Our view: buy

Share price: 485.75p (-18.25p)

Dechra has been one of our favoured stocks for some time now, putting out good updates even as other companies battled with sluggish trends in the wider economy.

Yesterday was no different. The veterinary products group issued a trading update ahead of its full-year figures in September, with the board saying that "although economic conditions have had an impact on our markets, the group has performed in line with our expectations and made solid progress in the financial year."

The US business is performing strongly, net debt is down and group revenues are up. They are also up in Europe. Moreover, at under 14 times forward earnings for this year and around 11 times on the estimates for next year, the valuation also remains attractive. We said buy at 445p in September. Although the stock is up nicely since then, we're confident that there is more to come.