Shares in Diploma (LSE: DPLM) were solid-if-unspectacular in Tuesday trade, the stock still settled following the release of half-year numbers yesterday.
The industrial distributor remains a whisker off recent record peaks above £11.30 per share however, and I fully expect this level to be breached in the near future as conditions in its key markets improve.
Diploma announced this week that revenues soared 21% during October-March, to £217.3m, a result that propelled adjusted pre-tax profit 22% higher to £37.1m.
The London business has seen organic sales growth accelerate more recently, with underlying sales growing 8% during the second quarter versus 4% in the prior three months.
And Diploma expects much more to come, noting that while beneficial currency movements should lessen during the second half of the year, that “the global trading environment is expected to provide opportunities for continued underlying growth in the group’s key markets.”
Full house
Promisingly, Diploma saw organic sales grow across all of its main divisions in the first half. Sales at Seals and Life Sciences rose 2% in the period. And the firm’s Controls arm stole the show as underlying revenues screeched 16% higher.
And Diploma remains busy on the acquisition front to keep the top line chugging higher further out. The company snapped up Abacus — a clinical diagnostics instrumentation and consumables supplier — late last month, and advised this week that its M&A pipeline remains “encouraging.”
The City certainly expects Diploma to keep its long-running growth story rolling, and has chalked in expansion of 12% and 5% in the years to September 2017 and 2018 respectively.
And I reckon a subsequent forward P/E ratio of 23.4 times is a fair valuation as sales growth gathers steam.
Plastics fantastic
RPC Group (LSE: RPC) is another FTSE 250 stock with electrifying growth potential. But unlike Diploma, I believe RPC can also be considered an attractive pick for those seeking hot earnings potential at bargain prices.
City brokers expect the plastics manufacturer’s splendid profits history to continue with a 16% earnings rise this year (a 44% advance is chalked in for the 12 months to March 2017). This leaves RPC dealing on a forward P/E ratio of just 12.1 times, while a sub-1 PEG multiple of 0.7 underlines the firm’s exceptional value.
The Northamptonshire business, which makes a variety of packaging products from yoghurt pots to contact lens cleaner bottles and the plastics that hold multipack cans of drink together, is expected to follow this year’s advance with an 8% rise in fiscal 2019 too. I believe RPC has all the tools to keep profits marching skywards.
RPC noted in March that “revenues for [fiscal 2017] are anticipated to be significantly ahead of last year, reflecting contributions from acquisitions and continued underlying organic growth.”
RPC’s insatiable appetite for M&A is certainly paying off handsomely, with the integration of GCS and BPI already running ahead of expectation. And the company’s strong appetite for bolt-on buys, along with the highly-fragmented state of the market, leaves plenty of scope for further purchases along the line.
And with the underlying packaging sector still growing at a solid rate, I believe RPC is in great shape to deliver meaty earnings growth long into the future.
