Diploma shares surge as YTD revenues rise 9%, buys DICSA for £170m

Diploma shares soared on Thursday as the company said revenues had risen 9% in the first nine months of the year and bought DICSA, a Spain-based distributor of fluid power solutions for £170m.

Reported revenue growth was 21% with net contribution of 8% from acquisitions and disposals, and a 4% foreign exchange benefit.

Diploma said trading so far had increased confidence in full year guidance of around 7% organic revenue growth, 7% contribution to revenue from acquisitions net of disposals; operating margin of 19%; and free cash flow conversion of 90%.

Steve Clayton, head of equity funds at Hargreaves Lansdown said: "Diploma say that their business model continues to add value for their customers, who make repeat purchases as a result, which is leading to a strong operating margin outcome for the year, suggesting profits could be rising ahead of the pace of revenue growth."

“We hold Diploma in our HL Select UK Growth Shares fund precisely because of the group’s ability to keep churning out the consistent organic sales growth they have reported today, boosted by a regular flow of bolt-on M&A deals. The added-value distribution model gives the group pricing power, allowing it to hold and grow margins even at a time of inflationary pressure. The balance sheet is in fine shape, with leverage still modest even after today’s news of the addition of DICSA to the group."

Clayton said the Diploma’s business model was a "relatively capital-lite operating structure" allowig the group to earn high returns on investment."

Reporting by Frank Prenesti for Sharecast.com