Halma PLC's (LSE:HLMA) call this week put Photonics firmly in the spotlight, and UBS thinks the division may be on the cusp of a broader growth story than investors have yet priced in.
Photonics, which accounted for 19% of group sales in the first half, continues to take an outsized share of attention as demand tied to AI-driven compute infrastructure remains strong.
Orders are still rising, book-to-bill sits above 1, and management has about 12 months of visibility, a rarity in a volatile market.
What stood out, though, was the suggestion that Photonics could move beyond its current focus on speed and latency to address energy efficiency in data centres.
With power consumption emerging as a major bottleneck for hyperscalers, the CEO’s comments hint at a potentially underappreciated application for Halma’s technology.
UBS sees this as an early sign that medium-term growth in the division could broaden meaningfully if the company becomes part of the solution to rising energy costs.
Elsewhere, the picture is also encouraging. Orders across the group are growing, and book-to-bill remains above 1. Water Infrastructure within Environmental & Analysis is gaining traction, pointing to better momentum into the second half.
Spectroscopy, which had a patchy first half, also sounded more positive. Safety delivered a record margin in H1 after divesting lower-quality assets, though management expects a normalisation as investment steps back up.
In Healthcare, growth is strong across most subsectors, with only the smaller Life Sciences business still held back by North America, where conversations with customers are improving.
UBS’s takeaway is that near-term momentum is broad-based, while sustained reinvestment during this period of “premium growth” positions Halma well for the medium term.
If Photonics does expand into energy-efficiency applications, the division’s importance could grow faster than currently assumed, supporting the 'buy' rating and 4,100p price target.