If I had to pick just one FTSE 100 share to own in the current market crash, I’d choose Halma (LSE: HLMA).
Shares in the company have not been able to escape the sell-off. The stock is off 18.5% from its 52-week high printed back in the middle of February.
However, the stock is down just 11% since the beginning of the year. That’s a relatively insignificant decline compared to the FTSE All Share’s 30% slump.
Market crash resilience
Halma has outperformed in the market crash because the business provides a critical service. It manufactures and distributes a range of protective equipment for the medical and construction sectors, among others.
The business hasn’t been able to escape the current virus outbreak. However, the impact on operations has, so far, been manageable.
According to its most recent trading update, adjusted earnings for the financial year ending 31 March 2020 will come in slightly below expectations.
The company is forecasting profit before tax for the year ending to be in a range of approximately £265m to £270m. The City was expecting adjusted earnings of £275m.
Still, in the same update, management revealed that order intake and revenue is currently running ahead of last year’s figure. That suggests that the impact of the coronavirus outbreak on Halma’s operations will be minimal.
What’s more, the company’s financial position is robust. It still has 40% left of a £750m revolving credit facility to fund operations if profits evaporate. Considering management’s recent comments, this doesn’t look likely. These numbers suggest the business has plenty of capital to survive the market crash.
Buy and build
As well as organic growth, Halma has historically followed a buy and build strategy. Last year the group completed 10 acquisitions to bolster growth. The company has the capacity to complete more deals over the next 12 months as well.
Halma is in a position of strength in the market crash — at a time when many other companies are struggling. This could present a once-in-a-decade opportunity for management to snap up a range of smaller businesses at attractive prices. These deals could help turbocharge the group’s growth over the next decade.
All of the above suggest that Halma’s dividend is safe for the time being. The stock currently supports a dividend yield of 0.9%. At a time when many blue-chip companies are cutting their distributions, this looks attractive. It is also attractive considering the current interest rate environment.
Unfortunately, shares in Halma don’t come cheap. The stock is currently trading at a price-to-earnings (P/E) ratio of 32. That’s around three times higher than the rest of the market.
Nevertheless, considering the group’s defensive nature, it could be a price worth paying to buy a defensive business in this market crash.
Moreover, for the past six years, Halma has managed to achieve an earnings growth rate of 15% per annum. If the company can repeat this performance during the next six years, earnings will double every five years. That implies investors are paying a 2030 P/E of just 10. On that basis, the stock looks to be good value at current levels.
The post 1 FTSE 100 share I’d buy in this market crash appeared first on The Motley Fool UK.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Halma. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020