Goldman starts coverage of Halma at 'buy'

Goldman Sachs initiated coverage on Halma Plc   Follow on Thursday with a 'buy' rating and 3,740p price target as it said its analysis demonstrates the sustainability of the company's high-growth, high-returns model.
"This underpins our forecasts of more than 11% adjusted EPS CAGR and circa 18% average ROIC over the next five years," GS said.

"Our FY26/27/28 adjusted EBIT forecasts sit circa.1%/7%/9% ahead of Visible Alpha consensus data, backed by the group's alignment to high-growth industrial end-markets and its proven M&A strategy."

Goldman said it believes this formula for growth is simple but sustainable and therefore warrants a premium multiple.

The bank's target price implies around 15% upside and 23.5x 12m forward EV/EBIT, which is a 55% premium to multi-industry versus 65% historically.

GS said M&A growth is central to its thesis. It noted that Halma has committed around £2bn of capital across 94 acquisitions over the last 20 years, funded out of free cash flow. On average, M&A has added more than 3% to its sales annually, GS said.

"With recent investments in its M&A teams and a pipeline of more than 600 potential targets, a key distinction between our forecasts and consensus is our modelling of generic M&A.

"This is backed by our analysis of the group's M&A record and our 16.4% average FCF margin forecast."

At 1010 BST, the shares were up 1.9% at 3,292p.