Halma Earnings: We Anticipate Margin Compression in Fiscal 2023 To Be Temporary

Narrow-moat Halma’s pricing power in products, which benefit from structural growth drivers was fully evident during fiscal 2023. Organic revenue growth of 10% was broad-based across operating segments, slightly ahead of our expectations. Bolt-on acquisitions remain a key component of Halma’s strategy, adding a further 3% growth (net of disposals) to its sales growth during the financial year. Supply chain issues within the group’s safety segment were the main cause for the decline in its profit-before-tax margin by 120 basis points to 19.5%, below our 20.2% estimate. Management guided for the profit-before-tax margin to increase to approximately 20% during fiscal 2024, which we expect will be likely given the wider availability of components. We reiterate our GBX 2,310 and view shares as fairly valued.