The price of safety
Health and safety technology group Halma (LSE: HLMA) released its annual results today. The shares are trading a little down, and at 934p the FTSE 250 firm is valued at £3.5bn.
Halma posted record numbers. Revenue of £808m was 11% up on last year, and ahead of a consensus forecast of £800m, while earnings advanced 10% to 34.26p, versus an analyst consensus of 33.8p. The board lifted the annual dividend by 7%, extending the company’s impressive payout history to 37 consecutive years of increases of 5% or more.
Chief executive Andrew Williams said: “The resilience and diversity of our markets, long-term growth drivers and business model give us confidence that we can continue to grow in today’s varied market conditions”.
Non-cyclical, with good cash generation and a robust balance sheet, Halma is highly attractive to investors. The company trades on 27.3 times trailing earnings, compared with 17.2 for the FTSE 250 as a whole, while the dividend yield of 1.4% is half that of the mid-cap market.
The valuation appears a little high, but with annual earnings set to continue advancing at around 10%, Halma is a solid hold in my opinion.
Special situation
There was also news today from AIM-listed Watchstone (LSE: WTG), the renamed and remaining rump of the notorious Quindell, which sold most of its assets to Australian firm Slater & Gordon over a year ago.
Watchstone’s new board has cleared up most of the past mess. Today’s news of a payment of $2.75m to settle litigation relating to an old acquisition concludes one of a few outstanding matters.
The shares are trading at 207p, valuing the company at around £95m. Watchstone has cash of about £85m, management is “confident” of receiving a further £50m from an escrow account (relating to the Slater & Gordon deal) and I reckon the viable businesses among its remaining operations can be valued at around £55m. So, by my calculations, the company is worth double its current market value.
I reckon the old Quindell directors will bear the brunt of a Serious Fraud Office investigation, while compensation claims from some ex-shareholders — currently amounting to less than £10m — may or may not come to anything. I believe the difference between my calculation of the company’s intrinsic value and the market value gives a sufficiently wide margin of safety to make the shares a buy.
Good long-term prospects
Fines and compensation claims were a reality for FTSE 100 giant BP (LSE: BP) following the Gulf of Mexico oil spill in 2010. But as those issues began to be resolved, along came the great collapse in the price of oil from over $100 a barrel to less than $30 to give investors another major headache. Oil has rallied from the lows, reaching over $50 last week, but sentiment remains fragile, and traders jittery.
I take a long-term with the big oil companies, and ask myself: Is it better to buy their shares when oil is trading at over $100 and everybody is happy to buy, or is it better to buy when oil is $30, $40, $50 and many investors have been scared off?
I believe BP has good long-term prospects. A dividend yield north of 7% may not be the safest in the market, but I reckon the shares, depressed at 365p, are a good buy if you’re looking to invest for years and decades, rather than weeks and months.
