Diploma Prelims

An international group of businesses supplying specialised technical products and services. They operate globally in three distinct sectors - Life Sciences; Seals and Controls. I have a holding in my growth portfolio (epic code: DPLM). 

 

Diploma released their preliminary results today with underlying revenue and adjusted operating profit both increasing by 8%; a similar growth rate to the nine month period (commented on here).  With ~75% of revenue generated outside of the UK, the strength of sterling adversely affected results, offsetting any benefit from acquisitions, so reported revenue and adjusted operating profit increased by 7% and 4% respectively.

By sectors underlying growth in sales were:

Life Sciences +9%

 

Seals +7%

 

Controls +8% 

Adjusted EPS was 36.1p an increase of 3.7% and beating the consensus 35p.  Reported EPS was up 2.3% to 31.4p and the final dividend is to be increased by 8.4% to 11.6p, to produce a full year dividend of 17p up 8.3%.

Free cash flow was strong (a consistent feature of DPLM) at £39.6m an increase of 9.1% on last year. The majority of this FCF was spent on dividends (£18.2m) and acquisitions (£16.5m), with net cash increasing at the year-end by £2m to £21.3m.

With respect to their outlook management have stated that "...Given the strong comparatives and the uncertain macroeconomic backdrop, the Board expects growth to trend this year towards our target "GDP plus" rates..."  This "GDP plus" rates has historically been defined as "...The businesses target organic revenue growth, over the economic cycle, at a rate of 5-6% p.a. ("GDP plus" growth), with higher growth rates achieved at the Group level through carefully selected value enhancing acquisitions..." see here on their web-site. 


At 689p Diploma is rated at 19x earnings and 19.7x FCF, not cheap, but for a high quality cash generative business that has increased EPS, FCF and DPS by a compound 27.3%, 9.4% and 16.9% respectively over the past 5 years - good value. 

Over the past 5 years Diploma has returned dividends and increased their net book value by a compound 15.6% pa per share and over the past 3 years their FCF has returned 23.4% on the average capital employed in the business compared to their weighted average cost of capital of 9%.