Broker snap: Jefferies expects consensus upgrades for Diploma

26th Mar 2012 11:20

Jefferies has reiterated its buy recommendation and 485p target price for seals and cylinders maker Diploma after an upbeat interim pre-close trading update this morning.The group said that revenues in the first half of its financial year are expected to be 12% ahead of the comparable period of 2011. After stripping out acquisitions and currency effects, underlying revenues will be around 8% ahead. However, Jefferies said that it was looking for 11% organic growth in the first half, as strong growth in the Seals division was partly offset by German sales in its Life Sciences unit.The broker says that the margin is the source of upside for Diploma: "With the Seals division producing gross margins in the 50-60% range we anticipate that group operating margin has improved from 19.6% to 20.0%. This is a significant improvement on the flat position the company had guided and is a record high."Jefferies expects consensus estimates for adjusted pre-tax profit (2012) to move up from £49m to £52m given the strength in the Seals division. The broker's own estimate is already £51.9m.BC