Diploma - chugging along nicely

Monday, Nov 21 2016 by

Industrial supplier Diploma announced its finals today (https://goo.gl/j6zOXY), sending its shares up 1.2% to 910.5p in early trading. Revenues were up 15%, profit before tax was up 5%, free cashflow was up 46%, and total dividends were up 10%. So everything is going in the right direction.

The Chief Executive commented:

Despite the current macro-economic uncertainty in the global environment, the Board remains confident that the Group will continue to make further progress in the coming year from a combination of steady GDP plus organic growth and a strong and successful acquisition programme.

Dividends have grown by 16% pa over the last 5 years, and more that quadrupled over the last decade. According to Stockopedia, its average ROCE over the last 5 years was 23.9%. It has next cash.

DPLM is part of my LTBH (long-term buy-and-hold) portfolio due to its combination of high ROCE, conservative financing, and steady increase of dividends. It is a “steady compounder”.

DPLM is rarely mentioned on the bulletin boards due to its lack of excitement value. Lack of bulletin board interest is usually considered a good sign. It does not appeal to value investors, as it is not a value share. It does not appeal to momentum investors, as you do not expect much momentum out of it. It is not a high-growth speculative stock which attracts the growth investors. It is not a big-cap, and it is not a small cap. So it slips under everyone’s radar.

And yet there it sits, quietly chugging along each year, pumping out ever-increasing dividends.

Readers with a good memory may recall that I sold out of DPLM a few years ago because the valuation looked a bit strong. It was a decision I rued. I bought back in nearly a year ago. The shares are up around 31% over 1 year, handily beating the Footsie, which is up 7% over the same period.

It is the kind of share that you have to resist selling. Stockopedia shows that its PE ratio is 19.4, which I think is at the upper end of what you can safely pay. It has a momentum score of 93, which is good, but I think it may have to trade sideways for awhile to let fundamentals catch up with valuation. It is just not a whizz-bang stock that attracts daft valuations.

I hold, and am happy…

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Diploma PLC is an international group of businesses supplying specialized technical products and services. It is organized into three business sectors: Life Sciences, Seals and Controls. Life Sciences Sector businesses supply a range of consumables, instrumentation and related services to the healthcare and environmental industries. Seals Sector businesses supply a range of seals, gaskets, filters, cylinders, components and kits used in heavy mobile machinery and specialized industrial equipment. Controls Sector businesses supply specialized wiring, connectors, fasteners and control devices. It offers products and services for various industry sectors, such as aftermarket, industrial original equipment manufacturers and fluid controls. It operates in various sectors through Diploma Healthcare Group, a1-group, Hercules Fluid Power Group, IS-Group and Filcon Electronic GmbH. It also supplies clinical diagnostics instrumentation and consumables to the Pathology and Life Sciences sectors. more »

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4 Comments on this Article show/hide all

Trigger14 21st Nov '16 1 of 4

Yes there's a striking lack of commentary about this one. The numbers (roce, cash flow growth etc) are pretty awesome as is the long term chart - looks like a great quality business. I've bought a few over the past year but I have to say I'm still a bit vague about what it does, its competitive poisition and what the long term prospects for its industry are. Do you have any thoughts on this?

Blog: Quality Share Surfer
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Weasel 22nd Nov '16 2 of 4

I've been researching them today and they do look like a good solid company, the valuation looks a little high to me though, but it appears they have always traded on quite a high PE. I guess that is the price of quality.

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herbie47 22nd Nov '16 3 of 4

I have had a quick look. Appears high valuation, EPS only +4%, Brexit still to happen. I don't understand why this sort of company has it's head office in central London.

It's not one for me at the moment.

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wildshot 30th Jun '18 4 of 4

I held this share a number of years ago and lost out when I used automated stop losses and my holding was no more. I've sat on the sidelines years later ruing my lost growth and thinking this is a bit pricey. However as you highlight this is a quality share with consistent shareholder returns which beat the market year after year. I plan to take a new stake in DPLM next week.

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About Mark Carter

Mark Carter

I am a private investor living in Scotland. I am a computer programmer by trade.


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