- Better than expected half-year revenue and profit growth
- Raised organic sales growth and margin guidance
- Analyst earnings upgrade
Specialist distributor Diploma (DPLM) delivered better than expected growth in first half revenue and adjusted operating profit and increased full year revenue and margin guidance sending the shares up 2% to £29.06.
The shares are up 18% over the last year but remain around 15% below the all-time highs achieved in 2021.
Revenue for the six months to 31 March increased 30% to £582.2 million with adjusted operating profit up 33% to £109.7 million. Acquisitions contributed 12% to growth while positive foreign exchange effects added 8%, resulting in organic growth of 10% mainly driven by volume gains.
Operating margins increased 0.4% to 18.8% reflecting positive operating leverage (higher proportion of revenues turning into profit) and the company’s ‘value-add proposition’.
Strong cash conversion was 70% ahead of the prior year boosted by lower inventories and working capital which fell 0.7% to represent 17.1% of revenue.
Consequently, net debt dropped to £154 million which represents a leverage ratio (net debt to earnings before interest, tax, depreciation, and amortisation) of 0.7 times.
Diploma raised £233 million to accelerate its healthy merger and acquisition pipeline in March.
WHAT DID THE COMPANY SAY?
CEO Johnny Thompson said: ‘We have had an excellent first half. The strong performance, with volume-led growth, encouraging margin progress and +26% EPS (earnings per share), builds on Diploma's long term compounding track record.
‘Our upgrade for the full year underscores our increasing resilience as well as the strength of the business model.’
Despite facing a strong comparative performance period in the third quarter of 2023 the company said it now expected to deliver 7% organic sales growth from 5% previously and a further 7% from acquisitions for the year.
The company further said it expected operating margin to be at the top end of the prior guided range of between 18% to 19%.
The strong update prompted Numis analysts to increase their EPS estimates, ‘We increase our FY23E by 6%, but see further upside potential, particularly as a near-term c.£1bn pipeline of 50 acquisition opportunities is progressed.’
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