- Better than expected full year profit growth up 24%
- 2024 margin guidance increased
- Analysts increase profit estimates
Specialist products supplier Diploma (DPLM) topped the FTSE 100 on Monday after beating full year market estimates and raising its 2024 outlook.
Revenues for the year to 30 September were 19% ahead of the prior year representing organic growth of 8% while adjusted operating profit jumped 24%.
While revenues were in line with company complied consensus profit was around 3% ahead of market expectations. The operating margin increased by 0.8% to 19.7% which the company said was driven by operating leverage, cost discipline and ‘accretive’ acquisitions.
Operating leverage is the effect whereby more revenues are turned into operating profit as fixed costs shrink proportionately.
The company, which focuses on the distribution of industrials controls, seals and life science equipment, spent £280 million of 12 ‘quality’ acquisitions in the period which supported revenue growth and said it has a mergers and acquisitions pipeline of around £1 billion diversified by sector, size, and geography.
The total dividend per share was increased by 5% to 56.5p and the company ended the period with a lower leverage ratio of 0.9x compared with 1.4x in 2022 based on net debt to earnings before interest, tax, depreciation, and amortisation.
Today’s gains of more than 9% to £33.10 took the shares to a new 12-month high which puts them without touching distance of the all-time high of £33.91 achieved in December 2021.
WHAT DID THE COMPANY SAY?
Chief executive Johnny Thomson commented: ‘We've had an excellent year with strong, volume-led organic growth; great margin progression; and continued double-digit EPS growth, all at strong returns.
‘We continue to diversify end-market exposures, penetrate core geographies; and expand addressable markets through product extension to drive organic growth.
‘We welcomed 12 quality new businesses to the Group. And, we carefully develop our businesses for scale.’
RAISED MARGIN GUIDANCE
The company gave a confident outlook statement despite a ‘challenging’ macro environment saying that 2024 growth is expected to be in line with its financial modelling albeit with stronger margins.
The company expects to deliver organic growth of around 5%, acquisitive growth of around 6% and a ‘strong’ operating margin of circa 19.7%.
Numis upgraded its earnings per share forecasts by 5% to 6% and said it remains confident in Diploma’s long-term ‘compounding growth opportunity’.
Shore Capital analysts Akhil Patel and Tom Fraine said they expected to upgrade their forecast for adjusted earnings before interest and amortisation by 7% to £262 million and adjusted pre-tax profit by around 4% to £244 million.
‘Diploma’s business model is based on offering technical sales advice under exclusive supply agreements (high customer switching costs) for essential opex driven products.
‘The Group is now much more resilient and well diversified given its expansion into attractive end markets, which are backed by long-term structural growth drivers.’
