About: Halma operates in highly specialised niche markets focused on safety, health and the environment. Products would include instruments that detect flammable and hazardous gases; fire detection systems; elevator safety products; devices that assist in eye surgery; and products for water quality testing. These markets are all supported by regulation, so barriers to entry are high and long-term growth and profitability has been impressive.

Why it’s in the portfolio: Most of Halma’s markets are underpinned by regulation, which creates high barriers to entry, drives sustained demand throughout economic cycles, and often makes customers’ spending non-discretionary. Halma’s approach is to find the most attractive niches within these markets and the company has achieved an organic growth over the last five years of almost 7%, including 10% in the last two (as at June 2019). Halma is unusual in that it complements a very successful longterm record of profitable organic growth with an excellent record of successful growth through bolt-on acquisitions. It looks to buy excellent businesses that it can invest behind to help grow faster, as opposed to purchasing average businesses and trying to make them better. There is no expectation of cost synergies.

Fundamentals: Halma is highly profitable and has an impressive record of having increased its dividend by more than 5% p.a. for 40 consecutive years.

What could go wrong?