J.P. Morgan has upgraded Diploma Plc to 'overweight' from 'neutral', citing sustained earnings growth and merger-and-acquisition upside at the specialty chemicals and engineered products group.
The brokerage raised its price target to 8,250 pence from 5,760 pence, applying a 22-times enterprise-value-to-EBIT multiple for December 2027, aligning with its peer group average. Diploma’s shares closed at 7,200 pence on August 21, leaving 14.6% upside to the new target.
FY26 adjusted earnings-per-share estimates were lifted 14.6% to 253.98 pence, while FY27 forecasts rose 14.7% to 263.65 pence. Consensus estimates for FY26 and FY27 have climbed 34% and 33% respectively since Diploma’s FY25 results last November, coinciding with a 36% share-price advance.
Analyst Jane Sparrow and the J.P. Morgan team noted they had "underestimated the earnings upgrade capacity of Diploma in 2026," as the group benefits from strong organic growth and disciplined capital deployment. Organic growth is expected to moderate toward a long-term average of around 6% in FY27 following two years of elevated performance.
Diploma’s trading multiples for calendar 2027 stand at 27 times price-to-earnings and 19 times EV/EBIT, below the peer group averages of 28 times and 22 times respectively. The brokerage’s valuation framework now assumes a 22-times EV/EBIT multiple for 2027, replacing a prior discounted-cash-flow model.
Over the medium term, J.P. Morgan projects a 10% compound annual growth rate in EPS from FY26 to FY30 under a base scenario, assuming M&A spending in line with the group’s five-year average. An upside scenario suggests potential growth acceleration to a 16% CAGR. Leverage is forecast to remain low at 0.4 times by the end of the period, well below the group’s two-times ceiling.
The brokerage flagged risks including increased sector concentration in aerospace, which now accounts for a high-teens percentage of group sales, as well as the potential for management guidance to be discounted amid elevated upgrades. Macroeconomic headwinds in the U.S. and U.K. were also cited as downside risks.
