Halma Senses Opportunities in Safety

The Week: Fire sensor specialist Halma should continue to thrive as building regulations get tougher, says Morningstar columnist Rodney Hobson

Rodney Hobson 17 July, 2020 | 9:43AM
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It’s coming to something when a company reports a 5% increase in the dividend for the 41st consecutive year and its shares fall 6%. That fate befell technology specialist Halma (HLMA). Admittedly Halma warned shareholders that profits will be down 5-10% in the current year to March but these are exceptional times and this is still an exceptional company.

Halma produces sensors for access to building and lifts, to detect fires, and to spot gas and water leaks. It reported pre-tax profits up 9% on an 11% increase in revenue during the past financial year. While that period mainly preceded the coronavirus lockdowns, that was a decent enough outcome.

The subsequent 4% fall in revenue in the April-June quarter was not too bad considering that cash-strapped customers inevitably postponed upgrades to sensors and detection equipment. Regulators around the world are demanding greater safety measures and while they will make some concessions in the current difficult financial circumstances the regulations will get tougher over time. Halma is set to bounce back sooner rather than later.

The shares are admittedly not cheap. They have fully recovered from the coronavirus dip and there are not many shares quoted in London that you can say that about. If you are in, stay in. There should be better to come and the warning over this year’s profits is likely to be overstated rather than understated.

Discount Me Out

Like many retailers, DFS Furniture (DFS) witnessed a ghastly April, a slightly better May and a distinctly improved June. Figures for July are likely to be well ahead of the same month last year. However, that doesn’t hide the fact that the April-June quarter was a disaster and it will take a lot of latent demand to make up the deficit in the coming months. DFS itself prudently remains cautious for the current year to next June owing to lower consumer confidence.

Revenue fell by more than a quarter in the 12 months to the end of June, hardly surprising given the enforced closure of stores and the suspension of deliveries. It’s true that its rivals were in the same boat so customers couldn’t take their trade elsewhere and DFS did take advantage of the government’s furlough subsidy and a business rates holiday but it still expects to report a pre-tax loss of £56-58 million plus a £16-18 million hit from restructuring its Sofa Workshop and Dwell chains.

The shares started the year at 289p and hit the bottom at 110p in March. They currently languish at 161p and I really can’t see them doing better than continuing to move sideways. A company that perennial feels compelled to sell its products at a massive discount even in the good times is no place to invest.

Patios and Pottery

Instead of sitting on a DFS sofa I’d rather be out in the garden standing on a Marshalls (MSLH) patio. Its business has followed a similar pattern since the lockdown started and so has its share price chart but prospects look much more reassuring, even if much of the outdoor season has been lost. Recent sales have been better than expected. The shares are worth a look at 627p.

Portmeirion (PMP) shares had already been sliding for nearly two years by the time they hit the bottom at 240p in March but they have perked up a bit to 384p. It’s been a tough first half, one that will see the ceramic homewares group slipping into a small loss, but it does have the advantage that sales are weighted towards the second half. The lockdown has given a much-needed boost to the online sales operations.

The shares are a risk but if you like potential recovery stories, take a look.

 

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.