Shore Capital downgrades Halma on valuation grounds

Halma was in the red on Monday as Shore Capital cut its stance on the safety products company to 'hold' from 'buy' on valuation grounds.

The brokerage noted that over the past fifteen years, Halma has consistently delivered robust revenue and profit growth whilst maintaining high margins and returns.

"Global increases in safety regulations, tighter environmental policies and a growing and ageing global population are all long-term growth drivers in the future success of the company in our view," it said.

In addition, it pointed to the company's strong balance sheet and around 86% average adjusted cash conversion, which it said provides a good base for further growth opportunities through innovation and international expansion, especially in developing countries.

"Halma trades on a forward 2019F adjusted price-to-earnings ratio of 31.2x, EV/EBITDA of 21x and a dividend yield of circa 1.1%. We continue to believe Halma is a great quality company and is in a good position considering it is well placed to benefit from recent capital investment to support growth.

"However, on valuation grounds, we downgrade our recommendation."

At 1130 BST, the shares were down 3.4% to 1,387.65p.