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Diploma seals more deals

The group took advantage of a worsening economic outlook to go on a spending spree
November 18, 2019

Diploma’s (DPLM) attempts to drive sales growth through acquisition was hampered in FY2018 by a lack of sellers in the market, making deals hard to come by. At the time, management predicted that the worsening economic outlook would precipitate an increase in M&A opportunities – and so it has proved. So, although Diploma, a specialised technical products and service provider, has had to contend with weakening global industrial markets, it has increased M&A expenditure fourfold on the prior year to £78.3m, pushing the group into a net debt position.

IC TIP: Hold at 1,770p

Acquisitions contributed 5 per cent to group sales growth, matched by organic expansion, with the remaining top-line growth down to sterling depreciation. Underlying growth in revenues and margins was driven by the life sciences and controls business, with profitability amplified by operational gearing. The seals business bore the brunt of the general decline in industrial demand, and management expects “moderately lower” organic growth in the current financial year, offset by further dealmaking. However, Diploma isn't the only business looking to bolster performance through M&A – competition among buyers is intensifying. Broker Numis is forecasting adjusted pre-tax profits of £107.4m, giving EPS of 71.5p for the September 2020 year-end, up from £96.5m and 64.3p in FY2019.

DIPLOMA (DPLM)   
ORD PRICE:1,770pMARKET VALUE:£2bn
TOUCH:1,768-1,77312-MONTH HIGH:1,778pLOW: 1,144p
DIVIDEND YIELD:1.6%PE RATIO:32
NET ASSET VALUE:284p*NET DEBT:5%
Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201533451.832.518.2
201638354.033.920.0
201745266.842.023.0
201848572.747.525.5
201954583.554.729.0
% change+12+16+15+14
Ex-div:28 Nov   
Payment:22 Jan   
*Includes intangible assets of £254m, or 224p a share