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QUALIPORT
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Updates this week from portfolio members Halma (LSE: HLMA) and Johnston Press (LSE: JPR) show why it pays to buy quality companies. Halma To recap, Halma develops a wide range of market-leading health and safety products, including fire alarms, water analysers, lift sensors, bursting discs and high power electrical resistors. Shareholder positives stem from bags of intellectual property and reputable brands (which help form good barriers to entry), price-insensitive customers (because product failure is very high relative to cost) and worldwide legislative pressure. Read more | more. Halma's interim results were released on Tuesday: The £50m purchase of BEA, a Belgian automatic door safety company, provided an additional £17m of sales during the 27 weeks to October 4th. Halma therefore trumpeted 'organic' sales growth of £6m, but craftily forgot to mention last year's first half consisted of only 26 weeks. With average weekly revenues of around £5m, true organic growth was a meagre £1m. Still, the latest figures also showed operating margins of 17%, the net cash balance being rebuilt from nil to £9m, and the dividend (one of the strongest on the market) being lifted 7% to 2.44p per share. Though 'little prospect of an imminent improvement' to trading conditions was indicated, Halma did report gains in market share. Research and development expenditure continues unabated, this being classed as a 'major growth engine... going forward.' So why will it pay to remain a Halma shareholder? Simply, strong market positions and capable management (witness the ease of integrating BEA, the company's biggest acquisition to date) should continue the steady growth and robust accounts in the years to come. Indeed, knowing these characteristics have long been the case at Halma, it wasn't a difficult decision for the Qualiport to pick up the shares at 111p in March this year. During what has been a tricky time for the global economy, Halma's dependable progress has since helped push the price to 137p. With 9.04p per share of free cash produced during the past twelve months, demanding once more a 7.5% free cash flow yield now requires a 120p entry point. Johnston Press Just like Halma, strong market positions and capable management are also two key features of Johnston Press. The local newspaper group is a regular producer of sturdy growth and solid accounts, where a recent sizeable acquisition has been successfully handled as well. Read more. Johnston's business qualities were highlighted in a trading statement on Wednesday. The update revealed better-than-expected second-half revenues, cost savings ahead of forecasts and the phrase every investor loves to read: "In overall terms, the improvement in revenue growth, coupled with continuing good control of costs, is expected to result in profits for the year to 31 December 2003 being above current market expectations." Noting Johnston's deep-rooted strengths when the shares were out of favour during 2001, though, has so far generated a near 80% gain for the Qualiport. Summary Halma and Johnston are archetypal quality companies. However, during the last few years, factors beyond their control have occasionally driven their shares to bargain levels. But this week's updates re-affirmed the operational strength of both companies and are proof -- if any were needed -- of why it pays to buy quality companies at attractive prices. More: Halma Annual Results 2003 | FREE Halma Annual Report The author owns shares in Halma and Johnston Press. 27 weeks to 26 weeks to
04/10/03 28/09/02
Turnover (£k) 146,900 123,846
Operating profit (£k) 24,434 20,723
Exceptional items (£k) - -
Pre-tax profit (£k) 24,449 21,219
Earnings per share (p) 4.53 3.91
Dividend per share (p) 2.44 2.29