Kone - Expanding Multiples

[ADrunkenMarcus]

Yes, that's very true Doug.

I have other holdings such as Unilever where valuation hasn't inflated to this degree and so the underlying business performance alone has delivered the results. However, Unilever's business growth is less than both Diploma and Spirax. So it could be tempting to do some chop and changing but I am resisting the urge!

As you know, I got into Diploma after you did, in 2012, and it was much better value at that time. Spirax looked - maybe not expensive, but not cheap - in 2015 at x23 earnings. I'm holding both for the long term but I'm acutely aware that much of the return has come from a re-rating above the fundamental business growth. I think Diploma's valuation is more defensible - a 3.5% free cash flow yield on a forward basis (2022 estimates) vs. 2.5% for Spirax (same basis).

I hope the p/es will gradually move towards something more sustainable over the long term as these businesses continue to grow but we may well see a period of relative stagnation while that adjustment happens.

Then again, what valuation is appropriate? These companies all grew their dividends this year! I'd rather hold them than Shell, Lloyds or BP...

Best wishes


Mark.

[ADrunkenMarcus]

It's a better problem than the other one though!

Our shared problem got worse today. Spirax went through £121 at one point and Diploma almost £24.

Best wishes


Mark.