Why Diploma PLC Commands Our Attention

"Be a business analyst, not a market, macroeconomics, or security analyst." - Charlie Munger

This wisdom from Charlie Munger perfectly captures our philosophy at Strategy Sprints. While others chase market movements, we pursue something far more valuable: sustainable pricing power. Today, I'm excited to share a compelling opportunity that exemplifies this principle - Diploma PLC.

The Hidden Champion of Critical Components

Imagine a data center construction project where a single misstep in wiring could cost millions. Or consider a manufacturing line where a failed robotic arm means hours of costly downtime. These are the moments where Diploma PLC shines. They don't just distribute products; they deliver peace of mind in mission-critical situations.

Through its network of 16 specialized businesses, Diploma has mastered the art of turning seemingly mundane distribution into high-value solutions. Let me share two examples:

The Wire That Changed the Game

Windy City Wire, one of Diploma's crown jewels, transformed how data centers are wired. Instead of providing standard wire drums that require two-person teams to handle, they developed pre-configured kits with easy-spooling mechanisms. The result? A 20-30% reduction in labor costs for their customers. This isn't just distribution - it's innovation that directly impacts the bottom line.

The Robot Whisperer

Tennessee Industrial Electronics (T.I.E.) tells a similar story. When expensive Fanuc robotic arms age out of warranty, most would consider them depreciated assets. T.I.E. steps in with an inventory of over 100,000 parts, breathing new life into these machines. They even restore them to their original glory, down to the exact paint scheme. This isn't just service - it's value preservation at its finest.

Strategic Clarity

What impresses me most about Diploma's management is their unwavering focus. They understand their core strength - the distribution of critical components backed by technical expertise and superior service. They don't chase fads or try to be everything to everyone. This strategic clarity has been fundamental to their success in building sustainable competitive advantages.

Acquisitions Approach

Since 2019, they've deployed over £1 billion in acquisitions, achieving an average return on capital of approximately 16%. In FY24 alone, they identified and acquired seven high-quality businesses at attractive valuations of 6x EBIT. This isn't just growth for growth's sake - it's disciplined, value-creating expansion.

Reliable 15% CAGR

Over the past 15 years, Diploma has delivered a remarkable 15% annual growth in earnings per share through a combination of organic growth and strategic acquisitions. But what excites me most is their runway for future growth. With exposure to structural growth markets like aerospace, defense, energy, and data centers, Diploma is positioned at the intersection of multiple secular trends.

The Power of Decentralization

Perhaps the most brilliant aspect of Diploma's management approach is their commitment to decentralization. In an era where many companies try to control everything from the center, Diploma takes a different path. They understand that entrepreneurship thrives on autonomy. Each of their 16 businesses operates with significant independence, led by managers who think and act like owners.

This decentralized model delivers three crucial advantages:

1. Speed and agility in responding to local market opportunities
2. Deep customer relationships managed by empowered local teams
3. A culture of entrepreneurship that attracts and retains exceptional talent

Why This Matters Right Now

All eyes are on the magnificent seven right now. This is our chance. The market doesn't fully appreciate businesses like Diploma - companies that have built moats through technical expertise, critical inventory, and superior service. While most chase the momentum story, we're finding value in businesses that solve real problems and command pricing power. Diploma is on top of my watchlist right now. Access my complete watchlist in our community.

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