Shares in Halma (LSE:HLMA) have fallen by 31% since the start of the year. But I think that this is a top UK stock and I’m looking to add to my investment in the company.
The average British adult in 2022 has £866 in monthly disposable income, according to Finder.com. At today’s prices, I’d look to use that cash to buy 40 Halma shares.
The company
Halma is a FTSE 100 company made up of a collection of businesses focused on different aspects of life-saving technology. These include industrial safety, environmental monitoring, and life sciences.
This means that the company attempts to grow its revenues in two ways. The first is by generating more money through its existing operations, and the other is by making acquisitions.
Attempting to grow by acquisitions is risky. There’s always a danger of paying too much for a business and making an investment that doesn’t work out.
Halma’s most recent trading update indicated strong growth, though. Revenues were up nearly 19% compared to a year ago, with just under 10% growth from existing businesses.
The report wasn’t entirely positive, though. While revenue increased by around 19%, profits only increased by just under 11%.
To me, that indicates that the business is facing rising costs, mostly coming from inflation. Following the report, the share price has fallen by around 4%.
I own Halma shares in my portfolio and I see the falling share price as an opportunity to buy more. I think that the underlying business is an extremely good one.
Business strengths
There are a few reasons why I think that Halma is a top UK stock. One of them is that its businesses are well protected from disruption.
Halma looks to acquire businesses that operate in niche markets. This deters competition, since the cost of competing isn’t justified by the returns on offer.
It’s also worth noting that Halma doesn’t have significant costs associated with running its operations. That gives it impressive cash generation abilities.
Halma generates around £220m in cash using £194m in fixed assets. That’s a return of over 100%, which is impressive.
Furthermore, the company has low capital requirements. Around 81% of the cash the company brings in through its operations becomes free cash available to shareholders.
Another impressive feature of Halma is its financial position. The company is in strong position due to the lack of debt on its balance sheet.
Halma’s net debt is less than the cash it generates through its operations. And interest payments on that debt account for less than 2.5% of its operating income.
Halma shares
If I had £866 to invest in December, I’d look to buy Halma shares. I think that the stock could be a great choice for an investor like me trying to build wealth over time.
The stock has been expensive recently, but a recent drop in the share price is catching my eye. The current share price looks like a good opportunity to me.
