These twoFTSE 250 starshave seen their share prices rising almost 50% in the past 12 months alone. The future could look just as dazzling.
Full of life
Diploma (LSE: DPLM) is international business supplyingspecialised technical products and services in the life sciences, seals and controls sectors. And it looks like a rewarding place to be, withthe share price up more than 50% in the last 12 months. Over five years it hasgrown 156%, with itsperformance chart showing an impressively steady upwards climb. Full marks so far. Can its success continue?
Earlier this month, its half-yearly report revealedan impressive 21% rise in revenues and adjusted operating profits to 217.3m and 37.4m respectively, and a 29% rise in profit before tax to 32.9m. Adjusted operating margins held steady at 17.2%, while adjusted earnings per share (EPS) rose 23% to 23.9p.
Chief executiveBruce Thompson hailed the groupsstrong underlying growth, while acknowledging that it enjoyed a one-off boost from the substantial depreciation in UK sterling. He saidthecomplementary acquisition of Abacus in April has addedcritical mass and opens up further growth opportunities in healthcare, while the pipeline for acquisitions remains encouraging.
The trading outlook looks positive as City analysts forecasta 15% rise in EPS in the year to 30 September 2017, followed byanother 6% in 2018. Revenues and profits also look set to rise strongly. Todays yield may look lowat 1.8% but that is partly a consequence of the stocksrapid growth. The dividend payout is nicely covered 2.1 times and management is progressive, recently hiking the interim dividend 13% to 7p per share. Investing in Diploma could prove a rewarding education, if you can accept its heady valuation of 26.73 times earnings.
Elementis, Dr Watson
Elementis (LSE: ELM) is up44% over the past 12 months, although itsfive-year track record is less impressive thanDiplomas. In June 2015 the speciality chemicalscompanys shares plunged 17% to 257p after it issued a profit warning. That was down to the US oil sector slump, which knocked 30% offsales of its additives used in drilling, and weakerChinese demand for its coatings additives.
Now Elementisis bouncing back, as the US shale industry makes a vibrant comeback and the Chinese economy holds up, with the key manufacturing purchasing managers index showing growth at 51.2 for a second straight month in May.
Elementis is a global operation that employs around 1,400 people in more than 30 worldwidelocations, servingcustomers in North and South America, Europe and Asia Pacific. Last months Q1 trading statement reported stronger demand across most of itsmarkets, with further progress expected as it remains on track to increaseoperating profits.
At 22.7 times earnings it isntcheap, althoughforecast EPS growth of 16% in the 2017 calendar year and 13% in 2018 largely justify that. This reverses falls of 17% and 18% in 2015 and 2016, suggesting that the company is back on track. Its well-covered dividend is forecast to hit 2.5%. The company is in its element right now, although recent volatility shows that it requires healthy demand from a buoyant global economy. Areyou feeling bullish?
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