Industrial fluid control specialist IMI has reported solid enough results, recording underlying sales growth of 5 per cent for the first half. However, the eurozone crisis has led to falls in purchasing activity in several of IMI's key markets and management, in a notable change of tone, now expects a slowing of growth in the second half and this puts our buy tip under pressure.
IMI's divisional performance was mixed. Underlying revenue in the fluid power division fell by 1 per cent to £373m, with a weak European market balanced in part by growth in Asia and the Americas. However, cost initiatives improved margins and operating profit edged up to £75m despite a 4 per cent fall in reported revenues.
By contrast, IMI's severe service business, which sells to the oil and gas industry, increased turnover by 17 per cent to £326m, but a poor product mix and a backlog of lower-margin orders meant that operating profits did not keep pace, rising by just 10 per cent to £45.5m. This effect should reverse in the second half when better priced contracts and productivity improvements start to kick in. With the exception of IMI's merchandising business, where revenues grew by 12 per cent to £90m, the remaining divisions saw flat underlaying sales growth.
Peel Hunt cut its full-year pre-tax profit estimate by 5 per cent to £370m, giving revised EPS of 82.5p (from £363m and 80p in 2011).
IMI (IMI) | ||||
|---|---|---|---|---|
| ORD PRICE: | 872p | MARKET VALUE: | £2.8bn | |
| TOUCH: | 872-873p | 12-MONTH HIGH: | 1,031p | LOW: 625p |
| DIVIDEND YIELD: | 3.5% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 195p* | NET DEBT: | 42% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 1.03 | 144 | 31.9 | 11.0 |
| 2012 | 1.09 | 154 | 34.5 | 11.8 |
| % change | +6 | +7 | +8 | +7 |
Ex-div: 5 Sep Payment: 12 Oct *Includes intangible assets of £563m, or 175p a share | ||||
