A detailed March trading update meant that shares in Diploma (DPLM) were unmoved on results day, but new chief executive Johnny Thompson will take heart from the 20 basis point improvement in the underlying operating margin and an expected 10 per cent increase in adjusted FY2019 revenue at constant currencies. Acquired assets are making a signficant contribution to the top line, with recent acquisitions FS Cables and Gremtek bedding-in successfully. Management added it was “optimistic” about the acquisition pipeline but again warned opportunities were “very competitive” - it's a seller's market.
However, although the technical products specialist remains on track to meet full-year expectations, management warned that the industrial seals market has shown signs of slowing down. That could potentially constrict earnings, even though the 50 basis point decline in the seals business margin was more than offset by improved profitability in the lifesciences and controls divisions.
One of the primary themes of the half-year reporting season will be the extent to which industrial companies are stockpiling to counter Brexit-related supply-chain issues. Diploma has boosted its inventory levels by 19 per cent since the Sept. year-end, giving rise to a commensurate decrease in free cash-flow for the period, though that didn't impede a double-digit dividend increase.
Diploma beat Numis’s expectations for sales, profits and EPS, but the broker opted to keep full-year forecasts steady at £93.1m for pre-tax profit and 62.2p for EPS for the Sept. year-end, rising to £98.4m and 65.8p in FY2020.
| DIPLOMA (DPLM) | ||||
| ORD PRICE: | 1,512p | MARKET VALUE: | £ 1.71bn | |
| TOUCH: | 1,511-1,512p | 12-MONTH HIGH: | 1,654p | LOW: 1,144p |
| DIVIDEND YIELD: | 1.7% | PE RATIO: | 30 | |
| NET ASSET VALUE: | 260p* | NET CASH: | £22m | |
| Half-year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 235 | 35.4 | 23.0 | 7.70 |
| 2019 | 260 | 40.1 | 26.4 | 8.50 |
| % change | +11 | +13 | +15 | +10 |
| Ex-div: | 23 May | |||
| Payment: | 12 Jun | |||
| *Includes intangible assets of £181.5m, or 160p a share | ||||
