DPLM is an international group of specialised distribution businesses serving industries with long term growth potential and the opportunity for sustainable superior margins. At least, that's how they describe themselves.

http://www.diplomaplc.com/

Businesses fall into three categories.

Life Sciences: Suppliers of consumables, instrumentation and related services to research, environmental and clinical laboratories. (30% of group revenue)

Seals: Suppliers of hydraulic seals, gaskets, cylinders and attachment kits for heavy mobile machinery. (28% of group revenue)

Controls: Suppliers of specialised wiring, connectors, control devices and fasteners for a range of technically demanding applications. (42% of group revenue)

Geographic revenue is UK: 46%, other Europe: 16%, North America 38% (includes Canada with different currency movement to US$). I think the figures refer to origin rather than destination but since this is not made clear there may not be much difference.

.		2001	2002	2003	2004	2005	2006	2007E	2008E
Sales		66.3	73.7	77.1	100.5	111.3	128.2	142.1	151.2
Growth	(%)		11.2	4.5	30.4	10.7	15.2	10.8	6.4
Eps (p)		30.2	29.5	32.2	41.2	53.7	62.8	65.3	68.3
Growth(%)		-2.5	9.3	28.0	30.3	16.9	4.0	4.6
Op.margins(%)	14.5	11.3	11.3	10.6	14.8	14.9

The group is cash generative and has held substantial net cash for the whole of the above period. The figure currently stands at £36.7m, which represents 40% of shareholders funds. It is not easy to pin down the underlying cash flow performance because property sales have boosted funds each year from 2002 to 2006. But the company web site provides a good indication on the “Our Performance” tab. No more property sales are expected in the foreseeable future.

My table below has also adjusted out all property sales:

.			2001	2002	2003	2004	2005	2006	
Op. Profit		9.6	8.3	8.7	10.7	16.5	19.1
Ocf b/f m.i.w.cap	12.1	8.9	10.1	12.7	18.4	21.5	
Op. Cash flow		9.4	9.9	11.1	10.7	16.4	20.9
Free cash flow		6.1	6.7	7.8	6.1	11.6	13.4
Capex/sales(%)		2.6	1.8	1.4	1.5	1.3	1.1

Op. cash flow averages 107% of op. profit.

Satisfactory control of working capital is evident from the figures and I like the gradual reduction of capex as a proportion of sales.

There were some negligible negative exceptional charges in 01 and 02 for business closures but all other exceptionals have been property disposals, bringing in a total of £22.6m.

Acquisitions totalling around £26m have been made during the 6-year period; the largest outflow of £17.3m occurring in 2004. My impression is that these have all been skilfully chosen and successful in outcome.

A trading statement made on 10/01/07 said the group had made a good start to 2007, despite adverse currency movements in US and Canada. European defence, aerospace and motor sport markets were relatively buoyant. North American markets continued to grow but modestly. With lower organic growth expected from its core businesses, continued strong growth would be more dependent on further high quality acquisitions. These sentiments are reflected in broker forecasts as can be seen in the first table above.

Interim results are due in early May. CBISS, a £6m acquisition, was completed in January. Presumably, their expected results are reflected in forecasts. But there is a stack of cash waiting to be invested. Brokers can't estimate for the potential. The group's confidence in its acquisition strategy looks justified to me, reflected in its lack of inclination to buy back shares or be more generous with dividends.

Market cap is £213m at 940p.

.		2007E 		2008E
P/E		14.4		13.8
EV/ebitda	7.9		7.6
Free c.f. yield	6.5%		6.8%	(estimated at 62.6% of forecast EBITDA, as per hist. ave.)

According to Hemscott, there has been no significant movement in broker forecasts during the last 3 months.

This share is not a high-flyer but it does look a relatively safe long term bet to me. Check the price performance over 2,3, and longer term against FTSE benchmarks. If you look at my own SP chart which covers 2.3 years, the FTSE 100 has been more or less tracked. Any single share will be more volatile than an index. It seems fairly valued to me at present. If looking to buy I'd suggest keeping an eye on moving averages.

The usual performance charts appear on the site below. Incidentally, it has been moved to a more permanent address. So the Delcam and Stanley Gibbons links in earlier posts will no longer work, but the relevant data can still be accessed via the menu.

http://www.david-wilmshurst.co.uk/dplm.html

DoY