Specialist engineering and distribution group Diploma (DPLM) has raised its FY26 revenue and profit growth forecast. The FTSE 100 firm said organic growth was better than expected, while acquisitions over the past year had also boosted performance.
A quality growth company
For H1 to March 2026, Diploma reported revenue of £851 million, up 17% on the previous year. Adjusted operating profit jumped by a third to £209 million, lifting the operating margin from 21.5% to 24.5%.
The firm said underlying revenue growth was 15% during the half, above the five-year average of 10%. Meanwhile, the group has made 15 acquisitions in the past 12 months for £310 million, with around half signed since its Q1 update.
Performance was driven by the Controls business, which posted 26% organic revenue growth. Demand from the aerospace, defence, data centre and energy end markets remains strong.
The company singled out IS Group, Clarendon and WIndy City Wire as delivering double-digit growth. Along with Peerless, the first two serve the aerospace and defence markets, while WCW serves data centre and infrastructure customers.
For FY26, Diploma now sees organic revenue growth of 12% instead of 9% with acquisitions adding a further 6% instead of 3%. Assuming a similar FY margin as in H1, operating profit should grow 30% against a consensus of 24%.
Diploma is often cast as ‘boring’, yet its results and its ability to compound growth are anything but. Even so, it remains one of the FTSE 100’s least well-known and least widely-owned stocks among retail investors.
The firm makes and distributes must-have components, even down to nuts and bolts, for customers in markets with attractive underlying growth. It also has the knack of allocating capital well, as its record of earnings-enhancing acquisitions shows.
All told, there’s no question it’s a high-quality business. As anyone who is familiar with the aerospace and defence industries knows, the standard of engineering required is second to none.
However, as with one or two other aerospace and defence-related companies, we’re struggling with the valuation. Since the invasion of Ukraine in 2022, the shares have more than trebled in value while earnings have ‘only’ doubled.
Both on a spot and a CAPE (cyclically-adjusted PE) basis, the stock now trades on 35 times earnings. That’s approaching three standard deviations above its 40-year mean on CAPE.
Investors need to understand the risks to their capital which are involved in owning the shares at these levels. It only needs the slightest disappointment over the next 12 months and the stock will de-rate in a hurry.
Read the press release here:
https://www.diplomaplc.com/investors
