Halma Plc "Acquisition of Dreampath Diagnostics for £132m with potential..."

Research evidence excerpt

Halma Plc "Acquisition of Dreampath Diagnostics for £132m with potential..."

ink? Analyst

High growth and high margin business. Dreampath is exposed to highly sticky and andre.kukhnin@ubs.com

recurring revenue streams (we estimate >60% of sales are recurring) in a market that is +44-20-7567 2162

likely growing mid-to-high single digit. However, once we overlay the opportunity for Dini Magoon

automation, we see the possibility of Dreampath growing in the 30s% in the short to Analyst

medium term and growing at a high single digit pace in the longer term. Currently, dini.magoon@ubs.com

Dreampath commands a c50% market share of the lab automation market, with +44-20-7567 4037

automation market penetration of a mere c10%. Gabriel Huber

Associate Analyst

gabriel.huber@ubs.com

Deal maths. Given the indicated 16-17x FY'27E EV/EBIT valuation for the acquisition we

+44-20-7883 0295

calculate a margin of c30-35%, while management expects the business to grow at

c30% over the short to medium term. We acknowledge this is above the 12-14x EV/EBIT

multiple typically paid in the Healthcare space, but once accounting for the expected

superior level of near-term growth, we estimate that the multiple compresses to 10-11x

on a two-year forward basis. We therefore view the valuation and the value creation

potential of this acquisition as attractive. Based on the above, we estimate the deal to be

c1.7-1.9% accretive to EBIT and c0.5-0.6% of PBT for Halma group.

Highlights (£m) 03/24 03/25 03/26 03/27E 03/28E 03/29E 03/30E 03/31E

Revenues 2,034 2,248 2,582 2,917 3,149 3,383 3,594 3,819

EBIT (UBS) 425 486 595 665 720 778 830 882

Net earnings (UBS) 311 356 431 484 525 570 610 650

EPS (UBS, diluted) (p) 82.12 93.83 113.58 127.64 138.41 150.38 160.88 171.31