J.P. Morgan has upgraded shares of Diploma Plc to overweight from neutral, citing stronger-than-expected earnings growth and potential upside from mergers and acquisitions.
Analyst Jane Sparrow and the J.P. Morgan team raised the price target to 8,250 pence for December 2027, a 43% increase from the prior target of 5,760 pence set for December 2026. Diploma’s shares closed at 7,200 pence on August 21, leaving the new target implying a 15% premium.
The upgrade follows upward revisions to Diploma’s earnings-per-share estimates. J.P. Morgan lifted its FY26 adjusted EPS forecast to 253.98 pence from 221.68 pence, a 14.6% increase, and raised its FY27 adjusted EPS projection to 263.65 pence from 229.80 pence, up 14.7%. Consensus estimates for FY26 and FY27 have climbed 34% and 33% respectively since Diploma reported FY25 results last November, while the stock has gained 36% over the same period.
The broker now values Diploma at a 2027 enterprise-value-to-EBIT multiple of 22 times, aligning with the average for its peer group of decentralised compounders and U.S. distributors. Diploma’s calendar-year 2027 P/E and EV/EBIT ratios are projected at 27 times and 19 times respectively, compared with peer averages of 28 times and 22 times.
J.P. Morgan expects Diploma’s organic growth to moderate in FY27 toward a long-term average of around 6%, following two years of elevated growth. Margins are projected to ease from FY26 peaks as Peerless, a subsidiary, adjusts spot pricing to sustain volume growth. Over the FY26-FY30 period, the broker models a 10% compound annual EPS growth rate under a standard scenario of maintained M&A spending in line with its five-year average. An upside scenario points to a 16% CAGR, with leverage remaining at 0.4 times by the end of the forecast window—well below the group’s 2 times ceiling.
Analysts noted they had "underestimated the earnings upgrade capacity of Diploma in 2026" and said the company "compares favourably" against its peer group on growth and returns. Risks flagged include increased sector concentration in aerospace, which now accounts for a high-teens percentage of group sales, potential discounting of management guidance, the lumpy nature of M&A-driven growth, and macro deterioration risks in the U.S. and U.K.
