DPLM: Model update - price target increased to 7300p

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DPLM: Model update - price target increased to 7300p

Diploma PLC

Target/Upside/Downside Scenarios Investment summary

Long-term, consistent track record: Organic revenue growthDiploma PLC

has been strong (averaged mid-single digit historically).

9,000 125 Weeks 27DEC23 - 18MAY26

8,000 Diverse portfolio: The diverse portfolio of businesses provides

TARGETTARGET 7300.007300.00 resilience, although we would note Controls is now easily 7,000

CURRENTCURRENT 6625.006625.00 the biggest division, whilst Windy City and Peerless have 6,000

5,000 contributed a disproportionate amount of growth and margin

4,000 of late.

3,000

2,000 High-return portfolio: EBITA margins are high in all three

3m divisions reflecting the value-added nature of the services.

2m

1m

2024 2025 2026 Acquisition potential: The group has a strong track record

D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M of bolt-on deals whilst maintaining a very strong ROIC. We DPLM LN Rel. FT ALL SHARE INDEX MA 40 weeks

Source: Bloomberg and RBC Capital Markets estimates for Target see significant potential accretion from future M&A given the

fragmented markets, significant white space allied to strongValuation FCF generation and a strong balance sheet.

The group is following the model of larger, successful

distributors in using FCF generation to drive overall EPS growth Valuation premium warranted: Whilst valuation is at the top

via a series of strategically sound bolt-on deals. The stock end of the sector, we see this premium as warranted given

trades on a high headline P/E and trades at the top end of the strong financial metrics, especially around organic growth,

the other defensive growth names in the sector. Our DCF of ROIC and EPS momentum.

the existing business, based on a WACC of 8.0% and terminal