Unveiling the untold success stories of Halma, Berkeley Group, and IG Design that will leave you in awe!

BUY: Halma (HLMA)

The equipment maker’s stellar record is still intact, writes Jemma Slingo.

The market has not been affected by Halmaannual financial report. Shares of the specialty equipment maker fell 5% shortly after its release, erasing some of the promising gains made since January.

There are a couple of possible explanations. Legal pre-tax profit fell 4%, which management attributed to a £34m gain on the sale that was accrued in the previous year. Excluding this one-off gain, pre-tax profit rose 7.8%, while adjusted pre-tax profit rose 14% to £361m, slightly above consensus expectations.

More concerning was Halma’s cash conversion figure of 78%, which was significantly lower than the 90% expected. Management blamed higher inventory due to supply chain issues.

“There was a difference in cash conversion between H1 and H2 due to the easing of supply chain pressure in H2 and allowing conversion to return to our 90% target,” said the director. financial Steve Gunning.

Other metrics also improved as the year progressed. Constant currency organic revenues increased 9.5% in the first half and 10.9% in the second. Similarly, adjusted profit increased 10.9 percent in the first half and 17.5 percent in the second. Given that Halma’s backlog is also strong — it’s ahead of last year’s comparable period — its growth prospects look good.

Halma’s stellar record is also reassuring. The group has now achieved 20 consecutive years of adjusted earnings growth and 44 consecutive years of dividend growth of 5% or more.

Management seems determined not to let things slip by: R&D spending rose by £17m to a record £103m in the period, while it spent a record £397m on acquisitions. However, these investments have significantly increased Halma’s debt burden and the group’s debt ratio (i.e. net debt to EBITDA) is now 1.38 times, up from 0.74 last year .

Also, Halma is entering new territory. After 18 years in charge, Andrew Williams has now retired as CEO, leaving the company in the hands of Marc Ronchetti. The economic backdrop means it’s a tough time to take the reins, and Halma is more than three times the size it was during the 2008 financial crash.

However, we remain convinced that Halma is a quality company with a proven business model and strong product portfolio. It doesn’t come cheap, but its price-to-earnings ratio of 29.5 is significantly below its five-year average.

SALE: Berkeley Group (BKG)

The homebuilder hasn’t shied away from the bad news, but that doesn’t make it much easier to swallow, writes Mitchell Labiak.

On the morning of The results of the Berkeley Group release there was much more news to consider. Core inflation in the UK has hit a new 30-year high; the two-year gilt yield hit 5.1 percent, the highest level since 2008; the national debt has reached 100% of GDP for the first time in more than six decades; and annual house price growth has slowed to a pace not seen since September 2020, when Covid-19 restrictions dragged on the market.

Berkeley was among the worst performers on the FTSE 100 along with other homebuilders and real estate mutual funds, whose shares fell 2% to 4%. The prospect of higher interest rates is weighing on the sector, and news from Berkeley’s results has been mixed at best.

Let’s start with the good news: pre-tax earnings growth beat consensus forecasts, while revenues and operating profit also increased. Like most homebuilders, Berkeley is sitting on net cash, though its £405m is particularly comfortable and far more than last year, when it had £263m in its coffers. This is prudent when interest rates are likely to remain elevated in the coming months.

Higher rates mean the fall in the housing market could drag on longer than expected. Berkeley said there was a “lack of urgency” in the market and it expected sales to fall by a fifth during the year under review. Combined with rising construction costs, this could further reduce its operating margin, which fell 103 basis points to 20.3%.

Dividends are back this year, although they remain 21.8% below 2021 and 23.8% below 2019. The problem isn’t earnings, as dividends are well hedged. Modest distributions are likely to indicate low confidence in the coming months, which is to be expected in this market, but not great news for income seekers.

That said, the company’s 20% premium to net asset value is hard to justify, especially with many peers now trading at discounts, despite Berkeley’s focus on wealthier buyers. On a price/earnings basis, stocks appear to be better value, even if the expected decline in earnings makes them less so. Therefore, at this price, we downgrade our rating.

ESTATE: IG Design (IGR)

The company aims at 2025 as a key year for the recovery of profitability, writes Christopher Akers.

Stationery and gift company IG Design’s operating profit margin and share price were hurt by supply chain hurdles as costs soared in its key US market.

But the share price has doubled in the past 12 months, with the market becoming interested in a potential recovery story, although April’s trading update, which details a goodwill write-down, took some of the of brilliance. In this context, the confirmation by management to aim for a return of margins to pre-pandemic levels by the end of 2025 was important.

There are signs that the recovery strategy is paying off, judging by a better-than-expected increase in underlying earnings and operating margin. However, an adjusted margin of 1.8% isn’t exactly the best worldwide.

Much of the story is the company’s ongoing restructuring in the United States, which contributes two-thirds of sales. A 10% decline in US sales was driven by the exit of unprofitable contracts and weaker volumes in the second half. International sales were down 3%, with adverse currency moves offsetting growth – European growth of 18% was outstanding.

The move to a statutory loss was influenced by the $29.1m (£22.7m) writedown of historical goodwill from the UK and Asia acquisitions due to weakening cash outflow . Management highlighted the decline in consumer demand in the UK in the recent quarter.

A stronger balance sheet supports the recovery narrative. The company refinanced a $125 million bank facility, while net debt (including leases) decreased $40 million, year-over-year.

Elsewhere, the backlog came in at a fairly solid 62% of projected 2024 sales, although this was lower than last year’s 71%.

Canaccord Genuity raised its adjusted pre-tax earnings forecasts for the next two financial years by 8% and 11%, respectively. Analyst Mark Photiades said the broker expects revenue growth to pick up again in 2025.

The shares are valued at 12 times forward earnings, according to the analyst consensus on FactSet. Seems like good value if the margin recovery plan works, but that remains to be seen.