Halma Plc

Halma Plc (LON: HLMA) is an Electronic & Electrical Equipment company engaged in the business of manufacturing products that enhance and protect the peoples’ life quality. The company’s businesses are divided into four reportable segments being Process Safety, Environmental & Analysis, Medical and Infrastructure Safety.

Recent News
On 5th February 2020, Halma announced the acquisition of Indiana, USA based gas leak detection company Sensit (Sensit Technologies LLC). The company will integrate Sensit with its Process Safety sector.

On 27^th January 2020, Halma announced the acquisition of Florida, USA based Medical sector company specialising in manufacture and designing of synthetic bone graft products NovaBone (NovaBone Products LLC), and Brisbane, Australia-based Infrastructure Safety company providing maintenance software for cloud-based fire protection, FireMate (FireMate Software Pty. Ltd.).

Financial Highlights: H1 Financial Year 2020 (30th September 2019, GBP, million)
In the first half of the financial year 2020, driven by a good performance from USA, UK, Asia Pacific and mainland Europe, the company’s revenue increased by 12 per cent to GBP 653.7 million as against GBP 585.5 million in H1 FY2019. The company’s adjusted PBT (Profit before tax) increased by 14 per cent from GBP 112.9 million in H1 FY2019 to GBP 128.8 million in H1 FY2020. The company’s statutory PBT (Profit before tax) increased by 12 per cent from GBP 94.5 million in H1 FY2019 to GBP 105.8 million in H1 FY2020. The adjusted earnings per share stood at 27.20 pence in H1 FY2020 versus 23.67 pence in H1 FY2019, an increase of 15 per cent. The statutory earnings per share stood at 22.40 pence in H1 FY2020 versus 19.67 pence in H1 FY2019, an increase of 14 per cent. The company’s interim dividend increased by 7 per cent to 6.54 pence in H1 FY2020 versus 6.11 pence in H1 FY2019.

Share Price Performance

Daily Chart as of February 5^th, 2020, before the market close (Source: Thomson Reuters)

Halma Plc shares were trading at GBX 2,242.00 at the time of writing before the market close (at 11:44 AM GMT) on 5^th February 2020 and were up by 3.13% versus the previous day closing price. Stock's 52 weeks High is GBX 2,242.00 and Low is GBX 1,448.00.

Valuation Methodology

*Peers: Avon Rubber Plc, Weir Group Plc, Spirax-Sarco Engineering Plc and Renishaw Plc.

Conclusion
The company had shown an increase in financial performance in the first half of the financial year 2020. Both the top-line and the bottom-line performance have improved for the period. The company’s operations are impacted negatively due to uncertainty created due to ongoing Brexit as it causes a disturbance in the supply chain. The geopolitical changes and recession in the economy could hamper the company’s operations and will affect the financial performance and operational stability of the company. The profitability of the company will also be affected by ongoing trade tensions between the Chinese government and the US government.

Therefore, on the basis of the above rationale, we have given an "Avoid" recommendation at the current price of GBX 2,242 (as on 5^th February 2020, before the market close).

 

Redrow Plc

Redrow Plc (LON: RDW) is prominent in the residential housing development in Wales and England. The company’s product range is mainly focused on regional businesses in Greater London and traditional family housing in its apartment schemes.

Financial Highlights – H1 Financial Year 2020 (31^st December 2019, GBP, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, the private net reservations increased by 18 per cent to GBP 936 million versus GBP 795 million in H1 FY2019, while the total order book remained flat at GBP 1.2 billion for the period.  Due to the weighting of homes turnover in the second half, the revenue declined by 10 per cent to GBP 870 million on H1 FY2020 versus GBP 970 million in H1 FY2019. The operating profit declined from GBP 187 million in H1 FY2019 to GBP 159 million in H1 FY2020. The company’s PBT (Profit before tax) stood at GBP 157 million in the first half of the financial year 2020 versus GBP 185 million in H1 FY2019. The PAT (Profit after tax) declined to GBP 128 million in H1 FY2020 from GBP 185 million in H1 FY2019. The basic earnings per share stood at 37.2 pence in H1 FY2020 versus 41.5 pence in H1 FY2019. The diluted earnings per share stood at 37.1 pence in H1 FY2020 versus 41.4 pence in H1 FY2019.

Share Price Performance

Daily Chart as of February 5^th, 2020, before the market close (Source: Thomson Reuters)

Redrow Plc shares were trading at GBX 827.00 at the time of writing before the market close (at 12:41 PM GMT) on 5^th February 2020 and were up by 0.61% versus the previous day closing price. Stock's 52 weeks High is GBX 837.00 and Low is GBX 527.50. The company’s stock has given investors 4.83 per cent of a positive return in the last month.

Valuation Methodology

*Peers: Bellway Plc, Taylor Wimpey Plc, Persimmon Plc and Vistry Group Plc.

Conclusion
The company’s financial performance has declined in the first half of the financial year 2020. The company aim to deliver more completions in the second half of the financial year 2020, which will improve the company’s revenues as well. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.  The company’s operations are impacted negatively due to the uncertainty created by the Brexit as it will result in an uncertain political and economic climate for short to medium term. Moreover, the company is trading near its 52-week high, raising doubts at its upside potential at current prices.

Based on the headwinds faced by the group and valuation as done above, we have given a "WATCH" recommendation at the current price of GBX 834.00 (as on 5^th February 2020, before the market close), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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