Technical products specialist Diploma (DPLM) saw just 1 per cent underlying revenue growth in the six months to 31 March as the Covid-19 pandemic compounded a softer industrial environment. Adjusted operating profit did rise by 9 per cent during the period, to £50m, on the back of a stable 17.6 per cent margin. Margin pressure arose in the larger seals business due to investment in a new US distribution facility and negative leverage from weaker underlying sales. But this was offset by an improved overall gross margin and tighter cost control.
Coronavirus disruption has made for a tough start to the second half, with sales in April plunging 28 per cent on an underlying basis. Though not specified, this is likely down to continued trends from March with the cancellation of elective medical procedures hitting the life sciences division and lockdown measures impacting the more European-focused controls business. In response to the crisis, capital expenditure has been frozen, and the half-year dividend pulled.
Excluding lease liabilities, net debt has almost doubled since the September year-end to £29.9m owing to acquisitions activity. But this is equivalent to 0.2 times cash profits (Ebitda) versus a banking covenant of two times Ebitda. Jefferies anticipates a net cash position by the year end.
The broker has downgraded its forecasts by almost a fifth, expecting adjusted pre-tax profit of £85m and EPS of 56.8p for the full year. This is against £96.4m and 64.3p in 2019.
| DIPLOMA (DPLM) | ||||
| ORD PRICE: | 1,791p | MARKET VALUE: | £2.03bn | |
| TOUCH: | 1,790-1,792p | 12-MONTH HIGH: | 2,152p | LOW: 1,191p |
| DIVIDEND YIELD: | 1.1% | PE RATIO: | 32 | |
| NET ASSET VALUE: | 283p* | NET DEBT: | 20%** | |
| Half-year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2019 | 260 | 40.1 | 26.4 | 8.50 |
| 2020 | 284 | 41.6 | 27.4 | nil |
| % change | +9 | +4 | +4 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £258m, or 227p a share, **Includes lease liabilities of £34.6m | ||||
