13th May 2024 09:58
(Alliance News) - Diploma PLC impressed analysts on Monday with better-than-expected half-year results, which prompted an increase to annual guidance.
The London-based supplier of specialised technical products now expects constant-currency revenue growth of 16% for all of financial 2024, which ends on September 30, up 0.5% from the company's previous guidance.
Diploma also anticipates an improved operating margin of 20.5%, an increase of 0.8 percentage point from its previous forecast, as well as EPS growth of 15%.
In financial 2023, Diploma delivered GBP1.20 billion in revenue and GBP183.3 million in operating profit at a 19.7% margin. EPS was 90.8p.
Shares in Diploma rose 4.7% to 4,084.72 pence in London early Monday. It was the best performing stock in the FTSE 100 index, which was marginally higher.
The improved outlook came as Diploma reported pretax profit of GBP77.8 million for the six months that ended March 31, down 1.1% from GBP78.7 million a year before.
Revenue was GBP638.3 million, up 9.5% from GBP582.8 million.
Revenue growth was recorded across Diploma's three sectors, with Seals showing the most significant improvement, by 22% to GBP241.2 million.
Further growth will be supported by Diploma's focus on "selective acquisitions", it said. The company acquired six "high-quality" businesses over the interim period for a total of GBP284 million.
Earnings before interest, tax, depreciation and amortisation rose 16% to GBP273.5 million from GBP236.3 million.
Stifel said the results were "good," with revenue and adjusted operating profit around 1% ahead of consensus.
The broker noted all divisions delivered organic growth, with Controls "the standout".
"The group remains highly cash generative and continues to execute strongly on its M&A pipeline," Stifel analysts said.
The broker thinks the raised guidance implies financial 2024 consensus adjusted operating profit rising around 3%.
"We are buyers at the current valuation and see upside
from further compound growth and strong delivery against financial targets. The group's clear strategy and trading resilience provide confidence in the growth trajectory," Stifel said.
Shore Capital also retained a 'buy' rating on Diploma.
"Diploma's business model is based on offering technical sales advice under exclusive supply agreements for essential/critical [operating expenditure]-driven products. Noting, customer switching costs are high. The group is also now much more resilient and well-diversified given its expansion into attractive end markets, which are backed by long-term structural growth drivers," the broker remarked.
"We see guidance/forecasts conservatively set and would expect continued growth momentum beyond what our forecasts imply," Shore Capital added.
By Jeremy Cutler, Alliance News reporter
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