Berenberg raises target price on Diploma following unscheduled trading update

(Sharecast News) - Analysts at Berenberg hiked their target price on technical products and services firm Diploma from 6,600p to 7,500p on Thursday following the firm's unscheduled trading update a day earlier. Berenberg said Diploma's update pointed to "strong trading in the year to date", with the firm also upgrading FY26 adjusted underlying earnings guidance by 13% versus prevailing consensus expectations of £337m. Full year rganic revenue growth was now expected to be 9%, up from 6%), while adjusted EBIT margins were seen expanding from 22.5% to 25% and adjusted earnings per share growth was pegged to be more than 20% year-on-year.

The German bank stated Diploma's performance had been driven by "strong growth" across its diversified portfolio. In part, it said this growth was due to Diploma's Peerless business delivering "outstanding" organic growth in the year to date.

Berenberg also noted that organic growth for the rest of Diploma's portfolio was said to be "strong and ahead of the group's financial model" for growth of more than 5%.

"We upgrade our EPS forecasts by double-digit percentages across our three-year forecast period and move our price target to 7,500p (from 6,600p). While shares performed strongly on 18 March (+18%), we still see significant attraction in a 26x FY27 P/E, in the context of the group's bestin-class sustainable quality compounding model," said Berenberg.

"Diploma's culture and model give us high conviction in the group's ability to deliver sustainable mid-teens-plus FCF per share and earnings growth over the long term. This trading update exemplifies our view. Continued execution by management offers significant upside risk to outeryear forecasts, offering scope for attractive shareholder returns."

Reporting by Iain Gilbert at Sharecast.com