Diploma Plc – FTSE-250 Stock Offering Services to Multiple Sectors

Diploma Plc (LON: DPLM) is a holding company, which supplies specific technical services and products worldwide. The company is organised into three different business sectors: Seals, Controls, and Life Sciences.

Financial Highlights – Robust Performance in the first half of FY2020 (31^st March 2020)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, the revenue surged by 9 per cent to GBP 283.6 million as against GBP 260.4 million in H1 FY2019. The group witnessed an increase of 1 per cent in underlying revenue growth for the period versus 6 per cent in H1 FY2019, due to impact of COVID-19 and softer industrial environment. The adjusted operating profit stood at GBP 49.9 million in H1 FY2020 versus GBP 45.6 million in H1 FY2019, reflecting an increase of 9 per cent and adjusted operating margin stood at 17.6 per cent for the period. The statutory operating profit increased by 5% to GBP 42.2 million in the first half of the financial year 2020 from GBP 40.1 million in H1 FY2019. The adjusted PBT (profit before tax) increased by 6 per cent from GBP 45.5 million in H1 FY2019 to GBP 48.4 million in H1 FY2020. The statutory PBT (profit before tax) stood at GBP 41.6 million in H1 FY2020 versus GBP 40.1 million in H1 FY2019, reflecting an increase of 4 per cent. The free cash flow surged significantly by 56 per cent to GBP 21.8 million in H1 FY2020 from GBP 14 million in H1 FY2019. The adjusted earnings per share stood at 32.3 pence in H1 FY2020 versus 30.5 pence in H1 FY2019, reflecting an increase of 6 per cent. The basic earnings per share surged by 4 per cent to 27.4 pence in H1 FY2020 from 26.4 pence in H1 FY2019.

Share Price Performance

Daily Chart as of May 11^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Diploma Plc shares were trading at GBX 1,801.00 at the time of writing before the market close (at 1:19 PM GMT+1) on 11th May 2020 and up by 1.81% versus the previous day closing price. Stock's 52 weeks High is GBX 2,152.00 and Low is GBX 1,191.00.

Valuation Methodology


Key Risks
The company’s operations are impacted by risks related to market trends, political change and change in the regulatory authority.

Conclusion
The company had shown decent financial performance in the first half of 2020. The company has a decent segmental performance from all the business units. The group had posted a decent underlying operating income. While the company operates in three different sectors with different cyclical characteristics and across several geographic markets, the company can face slowing revenue growth, due to reduced or delayed demand for products and services, or margin pressures due to increased competition as changes in the major markets can have a significant impact on the performance. Moreover, the global political and economic climate has become more uncertain, which may give an early warning of slowing demand and have a potential impact on key markets. The operations are impacted by the outbreak of coronavirus pandemic and the group has decided not to pay any dividend until the situation gets normal.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 1,815 (as on 11^th May 2020, before the market close at 9:35 AM GMT+1), while we look for any upcoming catalysts in the near term.

Micro Focus International Plc – Delivering Speed, Security, Agility, and Insights to Succeed Rapid Evolving Marketplace

Micro Focus International Plc (LON: MCRO) is a UK-based software & computer services provider company. The company provides software solutions which help to build and operate the enterprise.

Board Changes 
On 17^th April 2020,Micro Focus International announced the selection of Robert Youngjohns, as Non-Executive Director effective immediately.

Actions taken to Combat Covid-19 Pandemic
On 18th March 2020, Micro Focus International released an update related to Covid-19 impact on the business performance and decided not to pay any final dividend for the year 2019. The group expect that the global spread of Covid-19 will increase the macro uncertainty, while Micro Focus' business is not materially impacted by the outbreak till date, but the impact on the global economy is still unknown. The company is prepared to witness disruptions in new sales, while the majority of revenue is expected from recurring and contractual activities. The group for the next 12 months period should work cautiously and lower risk appetite. The board will think of paying the second interim dividend once it will be able to quantify the impact of Covid-19 on its business. The group is well capitalised with strong profits and recurring cash flows. As on 29th February 2020, the group’s cash balance stood at approximately USD 600 million, and the board is making decisions to maximise resilience and minimise risks to tackle the uncertain conditions.

Share Price Performance

Daily Chart as of May 11^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Micro Focus International Plc shares were trading at GBX 443.70 at the time of writing before the market close (at 1:23 PM GMT+1) on 11th May 2020 and down by 6.96% versus the previous day closing price. Stock's 52 weeks High is GBX 2,174.500 and Low is GBX 291.00.

Valuation Methodology


Growth Catalysts
The company continues to implement the strategy and business model to deliver returns. There remained a significant pipeline of business opportunity for the company.

Conclusion
The company’s revenue has dropped, and it has reduced its growth guidance. However, the company has adopted a more conservatism policy due to a deteriorating macro environment. Coupled with operational efficiency and disciplined capital allocation, and underpinned by effective long-term product management, the company continues to implement the strategy to deliver returns. Till date, the group’s operations are not impacted by the outbreak of Covid-19 and group is well prepared and taking necessary measures to increase resilience and minimise risks.

Over the course of 2 years (FY17 - FY19), the company’s revenue surged from USD 1,234.52 million in FY17 to USD 3,348.4 million in FY2019. Compounded annual growth rate (CAGR) stood at 64.69%.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 429.20 (as on 11^th May 2020, before the market close at 11:31 AM GMT+1) with lower double-digit upside potential based on 3.65x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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