Shore Capital Markets has downgraded its recommendation on Halma PLC (LSE:HLMA) from 'buy' to 'hold' following the acquisition of Rovers Medical Devices for £73 million, citing limited upside potential in the current share price.
According to Shore Cap analysis, the acquisition values Rover Medical Devices at an enterprise value to EBIT ratio of around 13 times.
Shore Cap noted this valuation is on the higher end but is justified by Rover's impressive margin profile and its sector positioning, with return on sales potentially reaching 45-50%, significantly above Halma's target range of 18-22%.
Analysts said Halma “is a high-quality and defensive business with long-term growth drivers (i.e. increasing health/safety regulation, increasing demand for healthcare services/life-critical resources, the need to improve operational productivity and efficiency, reducing waste/pollution and the renewables/green energy transition)”.
Despite this, Shore Cap has adjusted its recommendation for Halma to ‘hold' from ‘buy’, citing the limited upside potential after a strong 17% share price increase since November.
Shore Cap set a fair value estimate for Halma at 2,150p, assuming 5% organic revenue growth, which slightly increases to 2,250p with a 7.5% growth assumption, aligning closely with the current share price.