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(Sharecast News) - Goldman Sachs initiated coverage on Halma on Thursday with a 'buy' rating and 3,740p price target as it said its analysis demonstrates the sustainability of the company's high-growth, high-returns model.
"This underpins our forecasts of more than 11% adjusted EPS CAGR and circa 18% average ROIC over the next five years," GS said.
"Our FY26/27/28 adjusted EBIT forecasts sit circa.1%/7%/9% ahead of Visible Alpha consensus data, backed by the group's alignment to high-growth industrial end-markets and its proven M&A strategy."
Goldman said it believes this formula for growth is simple but sustainable and therefore warrants a premium multiple.
The bank's target price implies around 15% upside and 23.5x 12m forward EV/EBIT, which is a 55% premium to multi-industry versus 65% historically.
GS said M&A growth is central to its thesis. It noted that Halma has committed around 2bn of capital across 94 acquisitions over the last 20 years, funded out of free cash flow. On average, M&A has added more than 3% to its sales annually, GS said.
"With recent investments in its M&A teams and a pipeline of more than 600 potential targets, a key distinction between our forecasts and consensus is our modelling of generic M&A.
"This is backed by our analysis of the group's M&A record and our 16.4% average FCF margin forecast."
At 1010 BST, the shares were up 1.9% at 3,292p.
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