Morning Note: Market News and an Update from Diploma.

Market News

President Trump said he called off a strike on Iran planned for Tuesday after an appeal by the leaders of Persian Gulf allies, who called for more time to pursue a diplomatic resolution. Vladimir Putin is traveling to Beijing for talks with Xi Jinping as the Iran war offers Russia an opportunity to deepen energy links with China. Brent Crude fell back to $110 a barrel.

The dollar climbs against major peers as Treasury yields resume an advance that has brought the 30-year bond heading toward 5.15%. Gold slipped back to $4,540 an ounce.

Technology stocks led losses across equity markets as higher bond yields around the world put a question mark on valuations.  In the US, both the S&P 500 (-0.1%) and Nasdaq (-0.5%) lost ground. Google and Blackstone will form an AI Cloud JV relying on an initial $5bn equity commitment from the PE firm.

In Asia, equities were mixed: Nikkei 225 (-0.4%); Hang Seng (+0.5%); Shanghai Composite (+0.9%). South Korea’s Kospi, a bellwether for AI investment, fell 2.6%. Japan’s economy expanded at a 2.1% annualized pace in the first quarter, much faster than expected, supporting the case for further rate hikes

The FTSE 100 is currently 0.2% higher at 10,353, while Sterling trades at $1.3390 and €1.1510. Standard Chartered Chief Executive Officer Bill Winters delivered a blunt message on the future of the bank’s workforce, warning that a push into AI will impact employment.

Andy Burnham, a favourite to replace Keir Starmer, ruled out changing the UK’s self-imposed borrowing targets if he were to become PM. 10-year Gilt yields fell back to 5.07% from a high of almost 5.2%.

Source: Bloomberg

Company News

Diploma has released very strong results for the half-year to 31 March 2026. Once again, and despite the uncertain environment, the company has upgraded its guidance for the financial year to 30 September 2026, representing a 6% upgrade to consensus operating profit forecast. In response, the shares are trading up 5% in early trading.

Diploma operates a decentralised collection of distribution businesses which supply specialised industrial and healthcare products and services to a wide range of niche end markets, in which service, rather than price is the key reason business is won and retained. The focus is on the supply of low-cost, but essential products, such as a seal for a hydraulic cylinder. Most of the revenue is generated from consumable products, usually funded by the customers’ operating budgets rather than their capital budgets, providing a recurring revenue base. By supplying essential solutions, not just products, Diploma has built strong long-term relationships with its customers and suppliers, which support attractive and sustainable margins (c. 20%) and consistently strong cash flow.

The strategy is to build high-quality scalable businesses that deliver sustainable organic growth. Acquisitions are an integral part of the strategy, with a disciplined focus on acquiring value-added businesses in fast growing niches, with great management teams, to accelerate organic growth and generate attractive returns on investment.

In today’s results, the company has highlighted that trading remains very strong and the positive momentum has continued in the group’s second half. In the six months to 31 March 2026, reported revenue grew by 17% to £851m, including a 3% contribution from acquisitions and a 1% foreign exchange headwind. Organic revenue growth was 15%, well ahead of market expectations and full-year guidance run rate.

In Controls, the group supplies specialised wiring, cable, connectors, fasteners, and control devices used in a range of technically demanding applications. Organic revenue grew by 26% driven by excellent execution in favourable market conditions. Attractive end market exposures included aerospace, defence, datacentres, and energy. Double-digit growth was generated in IS Group, Clarendon, and Windy City Wire, in addition to continued outstanding performance from Peerless.

In Seals, the group supplies a range of seals, gaskets, filters, cylinders, components, and kits used in heavy mobile machinery and specialised industrial equipment. Organic growth was 2%, with North American Seals progressing well, strong growth in infrastructure, and exciting developments in nuclear power generation. International Seals remained challenging but the outlook is improving.

The Life Sciences business supplies a range of consumables, instrumentation, and related services to the Healthcare and Environmental industries. The division (+4%) is performing consistently in a tough healthcare market, with a focus on business development in MedTech and in vitro diagnostic markets. 

The adjusted operating margin expanded by 300 basis points to 24.5%, reflecting operational leverage and cost discipline. Adjusted EPS grew by 36% to 109.2p. Free cash flow was strong, up 32% to £110.7m, with conversion of 76%. Financial gearing fell from 1.1x net debt to EBITDA to 0.8x, well below the 2.0x target.

Diploma has a progressive dividend policy with a target cover of two times adjusted EPS. With today’s results, the group has declared a half-year payout of 19.1p, up 5%, reflecting confidence in the group’s growth outlook and future prospects.

Acquisitions continue to be an integral part of the group’s growth strategy. Over the last 12 months, the company has announced 15 acquisitions for c.£310m, including CDM, an $80m revenue US interconnect business into defence (subject to regulatory approval). With a healthy short-term pipeline, management is optimistic about this momentum continuing in the months ahead. Potential acquisitions are not reflected in the group’s guidance. 

In light of the strong performance, revenue guidance for the full year to 30 September 2026 has once again been upgraded: organic revenue growth has been raised from 9% to 12% (at the start of the year, it was 6%). Net acquisition growth is now expected to be 6% (vs. 3% previously). The expectation for margin remains at 25%. Overall, this represents a 6% upgrade to consensus operating profit of £428m.

Source: Bloomberg