Companies: DPLM   

International distribution venture Diploma, which operates in the life sciences, seals and controls sectors, featured as our Company Profile in December, where we flagged up its cash flow, profits growth and asset attractions. Encouragingly, the shares have crept healthily north from our 735.5p recommendation level and interim figures to March were excellent, prompting profit upgrades.

Chief executive Bruce Thompson announced a 20% rise in adjusted pre-tax profits (before exceptional items) to £9.7m, on sales up 17% to £63.5m, sending earnings higher from 25.3p to 28.9p and allowing a dividend hike to 8p (7p).

The numbers were driven by strong performances from the North American seals business, Canadian clinical diagnostics business Somagen, and also the IS Rayfast business in the UK. On the operating margin front, a small up tick from 14.3% to 14.6% reflected a significant rise in margins in the seals sector more than offsetting a decline in life sciences. Here margins eroded from 16.6% to 14.7% with progress at Somagen and a1-envirosciences somewhat masked by declining margins in the core Anachem business.

Intriguingly, Diplomas’ profits after the sale of a third phase of land at a former production site at Stamford rocketed higher from £8.3m to £20.3m, driving basic earnings to nearly 70p a share, and the company closed out the half with £30.3m cash. ‘We have brought in around £18m from phases 1, 2 and 3’, explained Thompson, ‘and we still have 150 acres up there, though we are not expecting to sell anything in the short term’. The cash pile gives Diploma, which has made 20 acquisitions over the past 10 years, further acquisitive firepower as a way of accelerating growth.

For the full year, investors can expect £20m of profit, upgraded from £19m, on sales approaching £130m, giving earnings of 61p and a forward p/e of 13.9. We remain buyers.