Halma slips as ‘quality defensive’ doubts raised

Halma was a laggard on Tuesday even as the FTSE 100 edged to within 1 per cent of its record high.

The health and safety sensor maker slipped 3.4 per cent to 912.5p after Redburn Partners argued that its reputation as a quality defensive may no longer be justified.

Although Halma has delivered annual dividend increases of at least 5 per cent for 37 straight years, its returns on capital have been deteriorating for the last four, analyst Stephen Swanton said.

The profitability of Halma’s recent acquisitions has disappointed while a growing reliance on emerging market sales has raised working capital requirements and eaten into margins, argued Redburn. It cut the stock to “sell” with an 850p target.

“Falling returns could be overlooked as long as Halma’s organic growth and execution remained flawless,” Redburn told clients. “But recent operating issues have broken this uneasy truce.

“Declining asset turnover and lower returns on M&A are symptomatic of a great business that is having to work harder to stay great.”

The FTSE 100 edged 0.4 per cent higher to 7,043.96, a 26.8 point gain.

Cruise ship operator Carnival led the risers, up 3 per cent to £41.45, after its full-year results beat expectations and came with reassuring outlook guidance.

Lloyds Banking Group gained 2.2 per cent to 63.9p after agreeing to buy credit card company MBNA from Bank of America for £1.9bn in cash.

The deal will lift Lloyds to second in the UK with 26 per cent market share versus Barclaycard with 27 per cent.

A purchase price equating to less than six times underlying earnings means Lloyds’ 2016 capital ratio target will be unaffected so shareholder returns remain safe with room left for a special dividend, said JPMorgan Cazenove.

Paysafe, which last week was the subject of an attack by a short seller, rallied 5.4 per cent to 360.6p after announcing plans to spend up to £100m buying back shares.

Fenner lost 2 per cent to 252.5p after scrapping plans to replace Mark Abrahams as chief executive and making permanent Vanda Murray, its acting non-executive chairman.

The conveyor belt maker, which had flagged up in June it was looking for new management, said pressure from Swiss activist investor Teleios had “materially disrupted” the recruitment process.

Numis Securities downgraded Fenner to “reduce”. The news “simply confirms our concerns that there is limited inertia for change and it is unclear who will be running the business medium term at an important juncture in the company’s future”, Numis said.

Avanti Communications rose 19 per cent to 24p after the satellite operator abandoned plans to sell itself and instead set out a $242m refinancing.