Shares in international distribution group Diploma (DPLM) leapt to the top of the FTSE 250 leader board with a rise of 9% to £27.35 after the firm raised its full year outlook.
Due to a combination of organic market share gains and acquisitions the group now expects revenues for the year to September to rise 20% against its previous forecast of 10% growth.
ABOVE EXPECTATIONS
In an unscheduled update, the controls, seals and life sciences group said trading so far this year had been better than expected with double-digit underlying growth in the first and second quarters.
The controls division registered a ‘very strong performance’, with international sales benefitting from the firm’s more diversified offering and an ‘excellent’ contribution from the Windy City acquisition.
Seals also benefitted from a broader product range and market share gains in the North American market in particular.
Life sciences revenue growth was less robust in the first half due to the impact of lockdowns in Canada and Australia and strong comparatives last year, but the firm is expecting good progress in the second half.
Equally encouraging was the news that operating margins remained healthy as the firm successfully navigated input price inflation, supply chain constraints and higher labour costs.
LATEST DEALS
The company also revealed it had acquired two ‘high-quality businesses’ for a combined £121 million as part of its expansion strategy.
R&G Fluid Power, acquired for £100 million, builds on Diploma’s existing UK after-market seals distribution operations and brings £65 million of annual sales.
The business has ‘significant’ organic growth potential through the after-market e-commerce channel, further regional expansion through its in-house platform and further product cross-selling.
LJR Electronics, acquired for £21 million, increases the group’s reach in the US controls market and is expected to contribute around £14 million of full year sales.
EXPERT VIEW
As Shore Capital analyst Akhil Patel points out, excluding the 2020 financial year Diploma has grown its adjusted EPS (earnings per share) by around 16% per annum over the last decade and is aiming to grow by the same amount going forward.
‘Combining strong returns on capital investment, financial borrowing headroom at a low cost and a strong M&A track record, we believe the strategy is achievable’, says Patel.
