Companies: DPLM   

Global distribution specialist Diploma, focused on the controls, life science and seals industries, continues to grow with resilience while churning out cash.

Despite prevailing economic headwinds, annual results to September were strong, revealing 18% growth in adjusted pre-tax profits to £27.5m, on sales up 22% at £172.3m. From earnings of 16.4p, the total dividend was upped almost 40% to 7.5p, following a year in which free cash flow improved by 36% to £18m.

As well as contributions from acquisitions completed in 2007, encouraging underlying organic growth was achieved, in spite of the woes of the global economy, while operating margins remained strong and stable, edging up from 15.7% to 15.8%.

Explaining Diploma’s resilience, CEO Bruce Thompson pointed to its focus on supplying specialised technical products to markets where a premium price is willingly paid for high levels of value added service and support. Furthermore, Diploma focuses on products typically funded from clients’ operating, rather than capital, budgets.

Sector highlights included a 40% sales advance to £62m within Life Sciences, driven by an excellent first full year flourish from AMT and strong appreciation of the Canadian dollar versus sterling – operating profits surged 45% higher to £9.6m. Within Seals, a full year from ‘M Seals’ sent profits 16% higher to £6.7m, on sales up 18% at £43m, while profits pushed 13% north to £11m within Controls, buoyed by a full year from Cabletec and euro strength relative to sterling.

Thompson says acquisitions remain ‘an ongoing activity’ and sees realism now creeping into vendor pricing expectations. With an ungeared balance sheet, Diploma remains well positioned to pounce on earnings-enhancing corporate morsels.

Considering Diploma’s five-year track record – adjusted earnings have grown at an average compound annual rate of 21% – its commitment to dividends and its unfettered progress, the shares, trading on a historic multiple of less than eight times, remain great value. Buy/hold.

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Diploma	LSE	£151.74m	134.00p	2.75p
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