A string of acquisitions proved key to propping up Diploma’s (DPLM) first-half performance, as the distributor of specialist components weathered fierce currency headwinds and weak growth in certain core markets. Diploma generates close to three-quarters of its revenues abroad, making it especially vulnerable to sterling strength. Fortunately, a record £35m of acquisition spending lifted sales by a tenth.
Despite tight control of costs, Diploma's adjusted operating margin tightened by 60 basis points to 18.1 per cent, keeping a lid on profit growth. The slip reflected currency shifts, weaker trading in its controls segment and lower operating margins at recently acquired businesses. Some of Diploma's end markets were also troublesome. For example, its life sciences division was affected by a Canadian crackdown on hospital costs, while the control operations faced lower demand from European industrial markets, particularly for motorsport and aerospace fasteners.
On the plus side, Diploma's seals business, which supplies hydraulic seals, gaskets and other components for heavy mobile machinery and industrial equipment, was buoyed by healthy demand in its core US market and the strong dollar. That helped send divisional revenues up 18 per cent to £65m. Moreover, operating margins widened as it reaped the rewards of prior investments in facilities, warehouse automation and IT systems.
Broker Jefferies expects adjusted pre-tax profit of £61.4m for the full year, with EPS of 39.9p (from £56.2m and 36.1p in 2013-14).
| DIPLOMA (DPLM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 823p | MARKET VALUE: | £932m | |
| TOUCH: | 821-823p | 12-MONTH HIGH: | 917p | LOW: 607p |
| DIVIDEND YIELD: | 2.1% | PE RATIO: | 25 | |
| NET ASSET VALUE: | 164p | NET DEBT: | 8% | |
| Half-year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 149 | 24.2 | 14.9 | 5.4 |
| 2015 | 163 | 26.0 | 16.2 | 5.8 |
| % change | +10 | +7 | +9 | +7 |
Ex-div: 21 May Payment: 17 Jun *Includes intangible assets of £135m, or 119p a share | ||||
