Berenberg hikes target price on Diploma following Windy City acquisition

Berenberg stated that Diploma had historically managed to maintain a balanced growth profile through the cycle, with any slowdown in organic revenue growth generally being offset by countercyclical merger and acquisition activity.

The German bank highlighted that with the third quarter of 2020 witnessing a record organic revenue decline, it was "fitting" that it was followed by the group's largest-ever acquisition, Windy City Wires, for $465.0m.

"We think this is an excellent deal for Diploma, given WCW's attractive growth prospects, scalable business model and healthy returns profile," said the analysts.

Berenberg noted that the deal was partly funded through a 10% placing, ensuring the group's balance sheet remained "conservatively financed".

"We update our forecasts to reflect the WCW deal and placing, but retain our 'hold' rating on valuation grounds," said Berenberg.