Specialist industrial parts distributor Diploma (DPLM) raised its guidance for FY26 revenue growth and margins after ‘very strong’ H1 trading. Shares in the group jumped 800p or 16% to a new all-time high of £58.40.
Sales and margin upgrade
The firm said it delivered a ‘great’ sales performance in H1 and was confident in the H2 outlook. It also said margins continued to expand helped by ‘steady accretion’ across the group and the integration of Peerless.
Therefore, it raised its FY organic sales growth forecast from 6% to 9%, with 3% growth from acquisitions as before. So far Diploma has made eight acquisitions for £130 million, with an expected combined annual operating profit of £20 million.
The firm also raised its operating margin forecast from 22.5% to 25%, which means a 13.5% upgrade to operating profits. In total, FY earnings growth will be over 20% with strong returns on capital, said CEO Johnny Thomson.
Controls business leads
The Controls business, which represents 55% of sales and grew 28% last year, has seen strong demand from aerospace customers. The firm expects ‘another outstanding organic growth performance’ in H1 and more typical H2 growth.
The Seals business, which makes up 30% of sales, has shown good progress in North American infrastructure and power demand. Elsewhere, markets including the UK have been ‘challenging’, meaning growth will be muted.
Life Sciences, the smallest division, still faces a ‘tough’ healthcare market although the firm has made market share gains in medtech.
Diploma, like Halma (HLMA), is a classic ‘quality compounder’, and has been a stellar performer over the past decade. The shares have risen six-fold from 750p at the start of 2016 to £53 at the start of this year.
However, over the last nine months or so they have trodden water as earnings have caught up with the valuation. Given the sell-off at the start of this month, the stock looked as oversold as it did in April last year, which explains today’s rally.
Read the press release here: https://www.diplomaplc.com/investors/
You might also like these stories:
