27th May 2026. 9.00am
Regency View:
BUY Diploma (DPLM) Second Tranche
- Growth
Regency View:
BUY Diploma (DPLM) Second Tranche
The Investment Case Just Got Stronger
Our first Diploma position from February is already up close to 24%, and after a move like that the natural question becomes whether we are simply arriving late to the party. Usually after strong gains we become more cautious, particularly when expectations start rising. However, the latest half year results have done something important. They have strengthened the original thesis rather than merely supporting it.
This is why second tranche buying can be powerful when done correctly. We are not averaging down into weakness or trying to rescue a position. We are adding after the business itself has improved. Diploma has delivered stronger growth, higher profitability and another guidance upgrade, while the shares have spent recent weeks consolidating rather than running away from us.
Importantly, the latest update does not feel like a one quarter spike. Management is now talking about sustained momentum across multiple end markets, improving profitability and stronger acquisition contributions. The machine we bought earlier this year appears to be running faster.
Strong Growth Is Becoming Stronger
The headline numbers were impressive enough on their own. Revenue increased 17% to £851m during the first half, while adjusted operating profit rose 33% to £208.9m. Adjusted earnings per share climbed 36% to 109.2p.
However, what stands out most is where that growth came from.
Organic revenue growth accelerated to 15%, up from 9% last year. Organic growth is often one of the cleanest measures of a company’s underlying health because it strips out acquisitions and focuses on what the existing business is actually doing.
Management also highlighted that this builds on a five-year average organic growth rate of around 10% annually. That matters because businesses often struggle to maintain growth once they become larger. Diploma appears to be doing the opposite.
Strong growth stories can occasionally become dangerous when revenue is expanding but earnings fail to keep up. We have all seen businesses that grow quickly but eventually disappoint because margins come under pressure or costs begin to rise.
Diploma continues to avoid that problem.
Higher Margins Are Telling an Important Story
Revenue growth tends to get the headlines, but one of the more interesting developments sits lower down the income statement.
Adjusted operating margins increased from 21.5% to 24.5%, representing a sizeable 300 basis point improvement.
That type of move is difficult to ignore.
Margins are often one of the clearest indicators of business quality because they reveal whether a company has genuine pricing power and operational strength beneath the surface. Higher margins suggest customers are paying for value rather than simply buying on price.
Diploma also continues to benefit from exposure to attractive structural themes. Management highlighted strong momentum across aerospace, defence, data centres and energy markets.
These are areas where demand trends can remain supportive for years rather than quarters.
The Controls division was particularly strong, delivering 26% organic growth. Seals and Life Sciences remained slower by comparison, but still added to the overall picture of a business benefiting from multiple growth drivers rather than relying on one standout segment.
Another Upgrade Means Expectations Are Moving Higher
Perhaps the most important part of the announcement was the upgraded outlook.
Management now expects:
• Organic revenue growth of 12%, upgraded from 9%
• Acquisitions to contribute 6% to growth rather than 3%
• Operating profit growth of over 30%
Importantly, this represented approximately a 6% upgrade to consensus expectations.
Repeated upgrades matter because strong businesses often create a feedback loop. Strong trading leads to higher earnings expectations. Higher earnings expectations support higher valuations. Stronger valuations provide greater flexibility for future growth.
We also continue to see significant acquisition activity.
The company has completed 15 deals over the last twelve months worth approximately £310m at an average acquisition multiple of around 8x. Seven of those acquisitions have taken place since the first quarter update.
The balance sheet remains supportive as well. Leverage sits at just 0.8x, giving management considerable financial flexibility without creating excessive risk.
Technical Analysis: Momentum Pauses While Fundamentals Catch Up
From a technical perspective, the current setup actually looks healthier than adding immediately after a strong breakout.
Following a sharp move higher during April and early May, the shares entered a consolidation phase. Rather than giving back the majority of those gains, Diploma has largely held onto its previous advance.
That distinction matters.
Weak stocks tend to rally sharply before immediately surrendering those gains. Stronger stocks often behave differently. They move higher, pause while buyers and sellers rebalance positioning and then attempt to build the next leg of the trend.
Recent price action appears closer to the second scenario.
The shares are effectively digesting a strong prior move while the underlying fundamentals continue improving. With our first tranche already performing strongly, the combination of strengthening earnings momentum and a consolidating chart provides a reasonable setup for adding to an existing winner.
Five Key Takeaways
1. Growth acceleration: Organic growth increased to 15% during H1.
2. Margin expansion: Operating margins improved by 300bps to 24.5%.
3. Profit momentum: Adjusted EPS increased 36% to 109.2p.
4. Guidance upgrade: Full year expectations moved higher again.
5. Trend intact: Shares are consolidating while fundamentals continue improving.
DPLM 3-Year Chart
Disclaimer:
All content is provided for general information only and should not be construed as any form of advice or personal recommendation. The provision of this content is not regulated by the Financial Conduct Authority.