Companies: DPLM   

International specialist distributor Diploma – profiled by Growth Company Investor at 735.5p in 2005 – shrugged off North American currency weakness to deliver double-digit growth for the year to September.

Chief executive Bruce Thompson reported a 14% increase in pre-tax profits to £23.3m before one-off property profits and amortisation, on a 10% turnover increase to £140.7m. From earnings up 11% at 69.8p, total dividends for the year increased 17% to 27p.

Diploma, whose businesses operate within the life sciences, seals and controls sectors, reported an ‘outstanding’ turn from its controls businesses. They delivered a 24% operating profits surge to £9.7m on sales up 13% at £60m, with ‘pretty much all’ of the growth organic. Group operating margins increased from 15.1% to 15.7% on the back of scale benefits and margin gains in seals and controls, which more than offset weaker margins in life sciences.

During the year Diploma, enjoying £13.2m of available cash, deployed £32m of its own cash on four acquisitions including CBISS in October 2006, medical equipment distributor AMT, aerospace wiring and connectors company Cabletec and M Seals, a European industrial seals business. The latter three deals occurred just before the year-end, meaning investors will see the full benefits during the current year.

Robust, diversified and achieving good growth organically and through acquisitions, Diploma trades on a historic earnings multiple of 12.9 and offers a 3% yield. It is a quality concern worth holding long term, but take note that a forthcoming four-for-one bonus issue will reduce share prices short term. The move is designed to ‘re-base our share price’ and improve liquidity. Hold

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