However, while the Swiss bank more than doubled its share price target to 2,060p from 945p and it upgraded its rating, this was only to ‘neutral’ as the shares have jumped 40% so far in 2019 to new all-time highs.
UBS's forecasts for the maker of smoke detectors and lift-door sensors to generate growth from M&A have been bumped up from 0% to 4%, putting the FTSE 100 group more in line with other companies like Assa Abloy and Hexagon, and reflect the optionality from Halma’s balance sheet and “substantial” gearing headroom.
Estimates for organic growth were also increased by 100 basis points to 7% “due to incrementally positive end-market signals” seen from improving spending trends in key US non-residential segments such as transport, water and wastewater.
UBS market research has also identified “supportive elevator aftermarket trends”, it's analysts said in a note to clients.
As a result of these combined factors, they lifted their estimates for Halma’s compound annual group sales growth to 11% for the next five years, up from the current consensus average sales growth of 6%, which the analysts said “underappreciates the potential upside from M&A”.
With the shares performing strongly this year, the stock is currently pricing 8% implied long-term growth, so UBS sees “short-term risks skewed to the downside at current levels, but in our view, fairly reflecting the long-term growth potential”.