Morning Note: Market news and strong results from distributor Diploma.

Market News

The latest commentary from Federal Reserve members signals a possible interest rate hold until at least September: Raphael Bostic said “I think we’ll have to wait three to six months to start to see where this settles out.”, while John Williams said the “Fed can take its time in assessing new data”. Meanwhile, JP Morgan’s CEO, Jamie Dimon, warned on Monday that investors were being too complacent as markets shook off news that the US has lost its last triple-A credit rating amid fresh concern over the federal government’s burgeoning debt pile.

Donald Trump said Russia and Ukraine would start talks “immediately” on ending the war following his call with Vladimir Putin. He didn’t rule out further sanctions on Russia or fresh weapons shipments to Kyiv, while making it clear he was disinclined to do either. Trump briefed European counterparts after the call. A European official said leaders disagree with his plan for Russia and Ukraine to talk directly.

India is negotiating a three-tranche trade deal with the US and expects an interim agreement before July, people familiar said. Japan’s chief negotiator continued to push for the complete removal of additional levies.

US equities shook off earlier losses to end to session little changed last night – S&P 500 (+0.09%); Nasdaq (+0.02%) – and remain on the brink of a bull market. Treasuries steadied after whipsawing yesterday following the Moody’s downgrade – the 10-year yields 4.45%. Gold dipped back to $3,210 an ounce on weak demand for havens.

In Asia this morning, equities rose for the first time in four days, putting a regional gauge close to levels last seen in October as trade tensions continue to tamp down: Nikkei 225 (+0.1%); Hang Seng (+1.4%); Shanghai Composite (+0.4%). The FTSE 100 is currently 0.4% higher at 8,718, while Sterling trades at $1.3370 and €1.1880. Brent Crude is currently $65 a barrel.

Source: Bloomberg

Company News

Diploma has this morning released results for the half-year to 31 March 2025. The figures came in better than expected and the group has raised its guidance for the financial year to 30 September 2025. In response, the shares are trading 15% higher 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 the six months to 31 March 2025, reported revenue growth grew by 14% to £728.5m (ahead of £713m expected), including a 7% contribution from acquisitions and a 2% foreign exchange headwind. Organic revenue growth was 9%, well ahead of market expectations and full-year guidance run rate. The company saw limited impact of tariffs, reflecting local supply chains.

In Controls, the group supplies specialised wiring, cable, connectors, fasteners, and control devices used in a range of technically demanding applications. In the first half, the division generated organic revenue growth of 16%, supported by structural tailwinds. The business achieved double-digit growth in Windy City Wire and continued outperformance from the Peerless acquisition, exceeding 20% return on capital in year one.

In Seals, the group supplies a range of seals, gaskets, filters, cylinders, components, and kits used in heavy mobile machinery and specialised industrial equipment. During the period, the business generated resilient performance in challenging markets, with a flat organic result. There was positive momentum in North America with improvement in International Seals still to come.

The Life Sciences business supplies a range of consumables, instrumentation, and related services to the Healthcare and Environmental industries. The division grew by 6%, driven by share gains across MedTech and in vitro diagnostic markets. 

The adjusted operating margin expanded by 190 basis points to 21.5%, reflecting accretive acquisitions, operational leverage and cost discipline. Adjusted EPS grew by 23% to 80.2p.

Free cash flow was strong, up 26% to £83.8m, with conversion of 78%. Financial gearing rose from 0.9x net debt to EBITDA to 1.1x, albeit still 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 18.2p, 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 – during the half-year, the company completed one bolt-on deal. The group remains disciplined in its approach to acquisitions and has a pipeline that is ‘bigger than ever,’ diversified by sector, size, and geography.

The group entered its second half with positive momentum across all three Sectors and guidance for the full year to 30 September 2025 has been raised:

-          organic revenue growth is now expected to come in at 8%, versus 6% previously.

-          operating margin is now expected to be around 22%, ahead of the previous guidance of 21%, in line with last year’s 20.9%.

Source: Bloomberg