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Diploma continues to expand

Strong currency headwinds didn't stop Diploma from delivering another year of profit growth.
November 18, 2014

Currency headwinds wiped £17.7m off revenues for Diploma (DPLM), in a year that otherwise ticked all the boxes. The distributor of specialist components makes more than three quarters of its revenues abroad, exposing it heavily to sterling's strength, but at constant currencies growth across all three divisions was strong.

IC TIP: Hold at 675p

The US-exposed seals business posted underlying organic growth of 7 per cent, thanks to healthy aftermarket sales, while strong civil aerospace, motorsport and energy markets buoyed sales in the Europe-exposed controls division by 8 per cent. Finally, Life Sciences benefited from strong demand for consumables and services, with underlying growth of 9 per cent - though in reality this was entirely wiped out by the weakness of the Canadian and Australian dollars.

Cash-rich Diploma also reinvigorated its acquisition drive, spending £16.5m in the financial year. While this figure isn't close to management's target annual spend of £25m, it easily surpassed the £2m spent in the prior year and underpins chief executive Bruce Thompson's belief that business confidence is finally returning following a sustained period of post-recession uncertainty.

Broker Numis Securities expects pre-tax profit of £60.8m and EPS of 39p for the current financial year (from £56.2m and 36.1p for 2013-14).

DIPLOMA (DPLM)
ORD PRICE:675pMARKET VALUE:£764m
TOUCH:670-675p12-MONTH HIGH:800pLOW: 607p
DIVIDEND YIELD:2.5%PE RATIO:21
NET ASSET VALUE:163p*NET CASH:£21.3m

Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201018426.714.69.00
201123139.224.012.0
201226046.027.914.4
201328648.530.715.7
201430649.831.417.0
% change+7+3+2+8

Ex-div: 27 Nov

Payment: 28 Jan

* Includes intangible assets of £109.6m, or 97p a share