Fri. Dec 3rd, 2021

What bottlenecks in the supply chain? Diploma plc, a British company that is quietly working to get medical instruments from surgeons and cable to the industry, is on the roll. The FTSE 250 Company on Monday reported £ 787.4m of revenue for the year to September, 44 per cent more than pre-pandemic 2019. Adjusted operating profit increased by 53 per cent over the same period.

Strong as the figures were – enough to get analysts scrambling to review forecasts – it should come as no surprise to shareholders. Diploma boasts a five-year compounded annual revenue growth rate record of 10 percent and adjusted operating margins of 17.2 percent. This gives him a top-three position among the furry basket of equipment rentals, wholesalers and bit-part engineers who provide the closest thing to a peer group.

Diploma did not hide from market view. Shares, which have risen more than half so far this year, have plummeted ahead of the FTSE 250. It has no specific secret sauce: it makes some parts, acquires others and delivers them to global customers across a range of industries. But it has a smart model.

The products it provides are tedious but essential: stamps, gaskets and the like come from customers’ operating expenses, not their more cyclical capital investment budgets. Laser-focused, mostly small acquisitions, tackle new product lines. It works well, as evidenced by the average increase from 200 to 300 basis points to operating profit after acquisitions.

Newcomers may be wondering if a buying opportunity exists. Return on adjusted trading capital, Diploma’s preferred measure that adjusts for the full year effect of acquisitions and sales, increased in the second half. At 17.4 percent for the full year, it remains less than 2020 and 2019. Yet any wavering seems more like a deviation than a new trend.

With little leverage – net debt up to 1.1 times ebitda – after five second-half transactions, Diploma has enough room for more acquisitions. It may be missing a snazzy metaverse or demigod founder to grab news. But sometimes boring earns a point.

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