DPLM (Diploma) is a company that doesn’t attract much attention. It issued its Q1 TU (trading update) today, with revenues up 23%. Net funds are up, too. All good to see. The market has been a bit undecided how to take the results, but it correctly stands up 1% to 1010p.
Dividends were 4.6p a decade ago, and have risen to 20p. It has averaged a ROCE of 24.2% according to Stockopedia. It’s a cracker of a company, which I hold.
BUT, a PE of 21 does look rather high for this company. It is also worth noting:
The very substantial depreciation of UK sterling against all the major global currencies contributed a 17% increase to reported Group revenues
So a lot of that revenue increase is due to currency translation.
Personally, I think Sterling will bottom shortly (which is of course adverse to DPLM) on the basis that:
- it’s at a 35 year low
- the majority of economists expect the pressure on Sterling to continue.
I work on the simple premise that economists basically have no idea what they are talking about, so when they say things like “and it can only get worse”, you have a big contrarian indicator.
They say that nobody rings a bell at market bottoms … but, well, sometimes they kinda do … and the people ringing the bells are politicians, economists and experts. They may not necessarily sound like bells, but they are bells nevertheless.
If you have a long enough memory, then you may recall that when the UK joined the ERM (Exchange Rate Mechanism), Sterling soon shot up to the top of its permitted range, and we had to take measures to weaken Sterling. Yes, believe it or not, Sterling became too strong for awhile.
Roll forward a few years, of course, and the whole thing crunched into reverse. We shifted to the bottom of the range. Lamont wasted huge amounts of taxpayer money trying to prop up our currency. It was a complete failure. He might as well have just set fire to it.
We had to beg Germany to lower their interest rates in order to make our currency more attractive. Germany said “no”, on the basis that they had to think of themselves first. Fair enough, I suppose, but that, my friends, tells you everything you need to know about the EU.
We now find ourselves in what is basically the complete opposite situation. Interest rates are low, we want to withdraw from the EU rather than tighten our bonds with it, and the pound has plummeted rather than soared. We should now expect Sterling to recover, in mirror image of what happened when we joined the ERM.
Anyhoo, I still have my holding in DPLM, but I expect they’ll be plent of profit-takers to emerge. That’s just my take on things.
Stay safe out there.