Halma Expects Profitability to Normalize After Record First-Half Results; Shares are Richly Valued

Having recently upgraded full-year profit guidance during a September trading update, there were no major surprises from narrow-moat Halma’s first-half results. Record revenue and profit was assisted by a weak comparator contributing to organic revenue and profit growth of 23.2% and 31.7%, respectively. Nevertheless, revenue and profits are comfortably ahead of precoronavirus levels. Management did however, caution of a more normalized PBT margin in the second half of the year against 21% generated in first-half 2022. We maintain our GBX 2,200 fair value estimate. Shares are trading a P/E ratio of 49 times based on company-compiled consensus earnings, which we believe is excessive.