Diploma (DPLM) has cash to spend. It just needs to find the right deals to spend it on. In the first half the company, which distributes specialist components to the healthcare, aerospace and automotive industries, spent £11.4m on acquisitions. That was a considerable increase from the prior period's paltry £1.5m, but still short of Diploma's target.
"We would like to spend around £25m a year on acquisitions," chief executive Bruce Thompson told us. He says there is a plentiful pipeline of opportunities, but due-diligence concerns have slowed the pace of deals. "If we find issues, we can't progress".
The appeal of acquisitions is clear: Diploma is in a relatively low-growth but cash-generative industry. Organic revenue growth did accelerate to 9 per cent in the first half, up from 4 per cent in the previous full year. But a stronger sterling wiped off some of that shine and Mr Thompson cautions that comparatives will be tougher in the second half.
There is not just a translation hit when Diploma converts its overseas revenues into a stronger sterling, but also a transaction impact as the company is paid in Canadian and Australian dollars. These currencies have fallen relative to the US dollar and euro, in which Diploma's own purchases are priced.
Broker Numis Securities expects full-year EPS of 34.8p, unchanged from the previous year.
| DIPLOMA (DPLM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 685p | MARKET VALUE: | £776m | |
| TOUCH: | 685-696p | 12-MONTH HIGH: | 800p | LOW: 527p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 22 | |
| NET ASSET VALUE: | 151p* | NET CASH: | £8m | |
| Half-year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 140 | 23.8 | 14.7 | 5 |
| 2014 | 149 | 24.2 | 14.9 | 5.4 |
| % change | +6 | +2 | +1 | +8 |
Ex-div: 21 May Payment: 18 Jun *Includes intangible assets of £109m, or 96p a share | ||||
