20th Nov 2023 17:04
(Alliance News) - Shares in Diploma PLC on Monday soared as the City warmed to its first set of annual results since being promoted to London's large-cap FTSE 100 index earlier this year.
The London-based supplier of specialised technical products and services said revenue rose 19% year-on-year to GBP1.20 billion from GBP1.01 billion, or 8% on an organic basis - ahead of its own forecast of 7%.
The boost in revenue was supported by 12 "quality acquisitions", Diploma said, which represented 8% of growth.
Meanwhile, pretax profit rose 20% to GBP155.6 million from GBP129.5 million. Adjusted operating profit rose 24% to GBP237.0 million, which was ahead of company-compiled analyst consensus expectations of GBP230.9 million.
The company upped its final dividend by 3.1% to 40.0 pence per share from 38.8p in financial 2022. It raised its total dividend to 56.5p per share from 53.8p, which fell slightly short of expectations of 59.8p.
Shares jumped 10% to 3,322.00p in London on Monday.
Analysts at Jefferies noted earnings per share came in 3% above consensus due to stronger than expected fourth quarter organic revenue growth and a 50 basis point margin beat.
Free cash flow was materially ahead driven by impressive inventory management, the broker noted, while 2024 financial year organic revenue growth guidance was in line with consensus but margin narrative was more robust.
On the back of the margin strength, Jefferies predicted EPS estimates were likely to increase by mid-single digits.
"Diploma's resilient prelims contrast with recent softness elsewhere in the distribution sector," the broker explained.
Looking ahead, Diploma said it is "confident" in its prospects, stating that it expects growth in financial 2024 to be in line with its long-term financial model. It expects volume-led organic revenue growth of around 5% and an operating margin of around 19.7%.
Analysts at Shore Capital expect a 5% increase expect "at least" to adjusted earnings before interest, tax and amortisation forecasts and around 4% to adjusted pretax profit estimates.
The broker pointed out Diploma has, over the last 15 years, achieved an average adjusted EPS compound annual growth rate of around 15%.
"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," it said.
Both Jefferies and Shore Capital rate Diploma 'buy'.
By Jeremy Cutler, Alliance News reporter
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