Diploma: a blue-chip set for strong growth
Diploma, whose niche products include seals and fasteners, serves an array of growth markets. Should you invest?


A small number of British firms have achieved sustained profitable growth using a combination of organic growth and bolt-on acquisitions, which are then developed much further. Diploma (LSE: DPLM) is a good example. I first recommended Diploma in MoneyWeek in April 2019, when the shares stood at 1,550p. That article pointed out that the share price had risen two-and-a-half times from 608p in autumn 2015 and suggested that there was plenty of potential for further growth.
This duly occurred: the recent share price is 4,140p, so the shares have risen almost threefold in just over five years, or nearly 22% per year with annual dividends on top of that. Diploma is a company in the FTSE 100 index with a market value of around £5.6 billion and 2023 turnover of £1.2 billion. The firm offers plenty of scope for further growth, with revenue up 52% between 2021 and 2023. Its three divisions all aim to achieve market-leading positions in their niches.
Diploma’s three arms are life sciences (comprising 17% of sales), seals (37%) and controls (45%). They all provide products coupled with services. These products and associated services are critical to customers, but of relatively low cost, so they are purchased from clients’ operating rather than capital budgets. Controls includes specialised fasteners (for aerospace, for instance) and adhesives; seals includes components and fittings for pneumatic pumps – both stock and custom-made, and often for mission-critical applications; life sciences includes technology-enabled products for surgery and endoscopy, along with diagnostic equipment for clinical laboratories and food safety testing.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Diploma's acquisitions drive profits
Diploma has a strong mergers-and-acquisitions (M&A) pipeline diversified by sector, size and geography. The firm made six acquisitions worth a total of £284 million in the first half of the year to 31 March 2024. This sum exceeded the total seen in the two full previous financial years. The largest purchase this year was America’s Peerless Aerospace Fasteners for £236 million. It will accelerate organic growth through product and geographical expansion and should add 8% to Diploma’s earnings per share (EPS) in the year after the takeover. The second-biggest acquisition was UK-based Plastics & Rubber Group Holdings (PAR) for £38 million. It will add scale to the seals-and-gaskets activities and deliver an additional 1% of EPS.
Both Peerless and PAR are founder-owned businesses with great records of organic growth and business models that match Diploma’s strategy of building high-quality businesses for sustainable organic growth. Diploma operates a decentralised business model that encourages entrepreneurship and focuses on core, scalable business lines that can be developed with organic growth supplemented by bolt-on acquisitions.
This strategy has driven the company’s profitable growth, with revenue more than doubling to £1.2 billion between 2020 and 2023, operating profit rising by 2.6 times over that period and the dividend climbing from 20.5p to 55.3p a share. Diploma serves a diversified set of growing markets, including clinical diagnostics, electrification, industrial automation, infrastructure, renewables, water management, energy and civil aerospace. This tempers the impact of a slowdown in any one market.
Diploma uses return on adjusted trading capital employed (ROATCE) as a key financial measure, which is more demanding than the usual gauge of profitability, return on capital employed (ROCE). ROATCE is the pre-tax return on total capital – fixed and working plus intangibles and goodwill, including goodwill previously written off against retained earnings. ROATCE, therefore, covers capital spent on acquisitions. Diploma’s average ROATCE for the past five years has been 19%.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Highly qualified (BSc PhD CPhys FInstP MIoD) expert in R&D management, business improvement and investment analysis, Dr Mike Tubbs worked for decades on the 'inside' of corporate giants such as Xerox, Battelle and Lucas. Working in the research and development departments, he learnt what became the key to his investing; knowledge which gave him a unique perspective on the stock markets.
Dr Tubbs went on to create the R&D Scorecard which was presented annually to the Department of Trade & Industry and the European Commission. It was a guide for European businesses on how to improve prospects using correctly applied research and development.
He has been a contributor to MoneyWeek for many years, with a particular focus on R&D-driven growth companies.
-
Review: Puerto Rico – embrace the spirit of Boricua
Travel Natasha Langan discovers why the indigenous name for Puerto Rico has come to define this Caribbean island’s vibrant culture
-
RICS: Property market confidence falls further as Autumn Budget looms
Property experts claim buyer confidence dropped for a second month in August, with several citing Budget speculation as a headwind
-
'Where to find the world’s hidden gems offering durable growth and value'
Opinion Joe Bauernfreund, chief executive officer and chief investment officer, AVI Global Trust, highlights three businesses where he'd put his money
-
What are wealth taxes and would they work in Britain?
The Treasury is short of cash and mulling over how it can get its hands on more money to plug the gap. Could wealth taxes do the trick?
-
UK bank stocks are no bargain – here's a safer alternative
Opinion Britain's banking sector faces severe political risks. Switch into this global financials trust instead, says Max King
-
Gold mining stocks outperform gold – can it last?
Opinion Gold miners are shining brighter than the yellow metal for the first time in this cycle. Enjoy the ride while it lasts, says Cris Sholto Heaton
-
The AI barons call time on the bubble
Opinion OpenAI's Sam Altman and other tech giants are warning that the AI boom is reaching dangerous territory. They may end up as the authors of their own demise
-
Three small companies with big potential
Opinion Nish Patel, portfolio manager of The Global Smaller Companies Trust, picks three small companies where he'd put his money
-
Automatic Data Processing is making big profits from organising offices – should you invest?
Automatic Data Processing has established itself as a one-stop shop for managing the workplace. Is it a sound long-term investment?
-
Crypto mogul Do Kwon pleads guilty to fraud
South Korean entrepreneur Do Kwon, who used to call critics cockroaches, faces a long spell in jail after pleading guilty to fraud relating to the collapse of two digital coins