Diploma Plc (LON:DPLM) received a double upgrade from RBC Capital Markets on Friday, with analysts moving the UK-listed distributor to “outperform” from “underperform” and raising their price target to 6,000p from 4,500p, in a note dated Friday.
Shares of the product company were up 2.1% at 06:28 ET (10:28 GMT).
The brokerage said Diploma offers one of the safest growth profiles in the sector, backed by consistent financial performance and a strong acquisitions pipeline.
The stock closed at 5,255p before the call, implying 15% upside to the new target. RBC set an upside scenario of 7,700p, a 48% gain, and a downside case of 3,700p, a 28% drop.
Diploma’s market capitalization stood at £7.04 billion, with average daily trading volume of 232,500 shares. Dividend per share is forecast to rise from 59.3p in 2024 to 62.3p in 2025 and 68.7p in 2027, equating to a yield of 1.3%.
Revenue was £1.36 billion in fiscal 2024 and is expected to increase to £1.50 billion in 2025, £1.63 billion in 2026 and £1.74 billion in 2027.
Adjusted diluted EPS was 145.3p in 2024 and is projected at 171.1p in 2025, 183.9p in 2026 and 194.9p in 2027.
EBITA margin is set to remain above 21%, while free cash flow per share is forecast to grow from 147.1p in 2024 to 199.8p in 2027.
RBC noted Diploma’s organic revenue growth consistently beats peers, averaging 5% annually over 20 years and 7% over the last eight. For 2025, organic growth is forecast at 9.9%, falling to 7.8% in 2026 and 6.8% in 2027.
The brokerage’s forecasts exceed consensus, which sits at 6% for 2026. Key contributors include 13% growth at Windy City Wire, 13% at Peerless, 6% at Life Sciences, and a recovery in North American Seals.
The analysts highlighted Diploma’s ability to generate earnings momentum from both organic growth and acquisitions.
The company has spent £1.2 billion on M&A in the past four years and maintains a pipeline of more than 3,500 opportunities, including 60 near-term.
RBC estimated Diploma could deploy £1.1 billion over the next three years by taking leverage to 1.4x, with potential EPS accretion of 20% by 2028.
Diploma operates across three divisions: Controls, which represented 52% of revenue in 2024; Seals, 32%; and Life Sciences, 16%. Geographically, North America contributed 56%, Europe 18%, the UK 16% and Australasia and other regions 10%.
EBITA margins were 29.4% in Controls, 19% in Seals and 21.3% in Life Sciences in 2025 estimates.
RBC said Diploma’s valuation is high, with the stock trading on 28.6x 2026 earnings, but argued it is justified by returns on invested capital of 22% in 2026 and 24% in 2027.
Its discounted cash flow valuation put the core business at 4,500p per share, with M&A adding 1,500p, supporting the 6,000p target.
The analysts contrasted Diploma with other large-cap defensive growth names such as Rentokil, Sodexo, Bunzl and DCC, where they see limited upside.
They said Diploma’s diversification, high-return portfolio and strong cash generation make it stand out in a sector with few comparable opportunities.
Source
https://www.investing.com/news/stock-market-news/diploma-gets-rare-double-upgrade-as-rbc-lifts-target-to-6000p-on-growth-momentum-4270160
