Shares in life sciences equipment, seals and controls distributor Diploma (DPLM) climbed almost 9% to £29.93, an all-time high, after the firm revised up its outlook and said it saw 2021 full year results ‘significantly ahead of expectations’ thanks to strong first-half trading.
DELIVERING ON ITS PROMISE
When Diploma released its full year 2020 results in November, which met with a lukewarm response, it said the current financial year would show ‘significant progress with exciting prospects’.
For the six months to the end of March, the firm delivered on its promise with revenue growth of 29% and ‘a return to growth across all three sectors’.
The Controls business traded ahead of expectations with an ‘exceptional’ performance from the Windy City Wire assets acquired late last year.
The Seals business showed ‘exciting progress’ in international and North America, while Life Sciences posted an ‘excellent performance’ as the easing of restrictions allowed them to boost sales.
MARGIN IMPROVEMENT
Savings from Covid-driven cost cuts and restructuring combined with an uplift in margins from acquisitions led to a 33% jump in operating profits and an increase of 0.6% in the operating margin to 18.2%.
The firm said it saw some supply chain disruption and inflation in the first half, and it expected similar pressures in the second half, particularly in older inventory, but it was well placed with suppliers and was confident it could pass on price rises to its customers.
With the strong sales momentum continuing into the second half, full year revenues are likely to be more than 40% ahead of last year and the operating margin is expected to be close to 19%.
UPGRADES FLOW THROUGH
Chief executive Johnny Thomson said he was pleased with the ‘exceptional contributions’ from recent acquisitions and ‘very optimistic about the short and long-term prospects’ for the business.
Analysts at Numis wasted no time in raising their current-year earnings per share forecast by 12% and their price target by more than 40% from a lowly £22.75 to £32.50 with an Add recommendation.
‘We remain confident in Diploma’s long-term opportunity for growth, with its premium valuation supported by favourable risk-adjusted returns, distributing essential products to customers in specialised industry segments at high returns on capital employed’ they added.
