J.P. Morgan upgraded Diploma Plc to overweight from neutral, citing robust earnings momentum and an active mergers-and-acquisitions strategy. The London-listed distributor’s shares closed at 7,200 pence on August 21, up 0.77%, after the bank set a new price target of 8,250 pence for December 2027, up from a prior 5,760 pence target for December 2026.
The upgrade reflects revised earnings-per-share projections, with adjusted EPS for fiscal 2026 rising 14.6% to 253.98 pence and fiscal 2027 EPS increasing 14.7% to 263.65 pence. Consensus estimates for both years have climbed sharply since Diploma’s fiscal 2025 results last November, with FY 2026 EPS up 34% and FY 2027 EPS up 33% over that period. The stock has gained 36% during the same interval.
J.P. Morgan’s new valuation framework applies a 22x enterprise-value-to-EBIT multiple for calendar 2027, aligning Diploma with its peer group of decentralised compound growth companies and North American distributors. The bank previously used a discounted cash flow model. Diploma currently trades at 27 times calendar 2027 earnings and 19 times EV/EBIT, below peer averages of 28 times and 22 times, respectively.
Analyst Jane Sparrow and the J.P. Morgan team noted that Diploma’s earnings revision capacity has been underestimated, adding that the company compares favorably to peers on growth and returns. Organic growth is expected to moderate toward a long-term average of around 6% in fiscal 2027 after two years of elevated performance.
The bank outlined two compound annual growth scenarios for EPS from fiscal 2026 to 2030. Under a standard scenario maintaining recent M&A spending levels, EPS would grow at a 10% CAGR. An optimistic scenario projects a 16% CAGR, with leverage projected to remain at 0.4x by the end of the period, well below the peer group limit of 2x.
J.P. Morgan flagged risks including increased sector concentration, with aerospace accounting for 15% to 19% of group sales, potential market skepticism toward upward guidance revisions, and the irregularity of M&A-driven growth. Macro risks in the U.S. and U.K. were also cited as downside factors.
