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Results: Halma plc Exceeded Expectations And The Consensus Has Updated Its Estimates

Simply Wall St

Halma plc (LON:HLMA) defied analyst predictions to release its interim results, which were ahead of market expectations. The company beat expectations with revenues of UK£654m arriving 3.0% ahead of forecasts. Earnings per share (EPS) were UK£0.22, 5.2% ahead of estimates. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. Readers will be glad to know we've aggregated the latest forecasts to see whether analysts have changed their mind on Halma after the latest results.

See our latest analysis for Halma

LSE:HLMA Past and Future Earnings, November 23rd 2019

Taking into account the latest results, the current consensus from Halma's eleven analysts is for revenues of UK£1.34b in 2020, which would reflect a reasonable 5.1% increase on its sales over the past 12 months. Earnings per share are expected to increase 7.7% to UK£0.51. Yet prior to the latest earnings, analysts had been forecasting revenues of UK£1.33b and earnings per share (EPS) of UK£0.50 in 2020. So the consensus seems to have become somewhat more optimistic on Halma's earnings potential following these results.

The consensus price target was unchanged at UK£18.65, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Halma at UK£20.60 per share, while the most bearish prices it at UK£15.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. It's pretty clear that analysts expect Halma's revenue growth will slow down substantially, with revenues next year expected to grow 5.1%, compared to a historical growth rate of 13% over the past five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 4.4% next year. So it's pretty clear that, while Halma's revenue growth is expected to slow, it's expected to grow roughly in line with the industry.

The Bottom Line

The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Halma following these results. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Halma analysts - going out to 2023, and you can see them free on our platform here.

It might also be worth considering whether Halma's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.