Berenberg impressed by "exceptional" dealmaking at Diploma
Diploma
3,616.00p
16:40 26/04/24
Berenberg has hiked its target price for controls, seals and life sciences equipment firm Diploma by 16%, saying there is "a lot to like" about this week's acquisition of US-based specialty fasteners business Peerless.
FTSE 100
8,139.83
17:09 26/04/24
FTSE 350
4,470.09
16:59 26/04/24
FTSE All-Share
4,423.59
17:14 26/04/24
Support Services
10,641.76
16:59 26/04/24
The broker maintained a 'buy' rating and lifted its target price for the shares from 3,800p to 4,400p.
Diploma announced on Wednesday that it was spending £236m on Peerless, one of the largest independent value-added distributors of aerospace fasteners and a "strong strategic fit" for the company at an attractive valuation.
Berenberg called the acquisition an "exceptional piece of dealmaking by management". The broker said: "It addresses investor questions about the sustainability of margins, the ability to source increasingly larger, yet still attractive and financially sensible deals as the group continues to grow, and whether mid-single-digit organic growth is sustainable for Diploma."
The move also marks a further push into fast structural growth markets, Berenberg said, which could see organic growth trend up beyond 6% over time. "There is a lot to like, as evidenced by a c10% share price move on the day," it said.
"At the group’s FY 2023 results in November, we outlined the building blocks for mid-teens annual returns, while pointing to the M&A firepower available. Peerless builds on, if not accelerates, that thinking and brings the group’s last three-year track record of 18% EPS growth CAGR sharply into focus."
The stock, after a big jump the previous session, was down 0.6% at 3,726p by 1240 GMT on Thursday.