Diploma PLC (LON:DPLM) has been downgraded to ‘neutral’ from ‘overweight’ by analysts at JP Morgan after the investment bank highlighted a “surprisingly strong share price reaction” to the technical product maker’s acquisition of US low voltage wire and cable firm Windy City Wires.
In a note on Wednesday, the bank’s analysts said while the £357mln acquisition was appealing, the share price was now 28% higher versus the earnings per share (EPS) accretion of 13%.
READ: Diploma surges as it raises funds for proposed Windy City Wire acquisition
JP Morgan added that they are also conscious of the impact of the lower return on capital employed (ROCE) merger on Diploma’s earnings growth potential.
The deal to acquire Windy City was announced last month, with Diploma saying the company was a “highly attractive business” in a core market and from the first year of ownership is expected to be both significantly earnings enhancing and cover Diploma's cost of capital.
Shares in Diploma were 0.26% lower at 2,282p in late morning trading.