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Tough year awaits IMI

Concerns over the plummeting oil price are overshadowing the engineer's restructuring progress
March 2, 2015

Strategic plans to double operating profits over the next five years were once again a major talking point as IMI (IMI) presented its full-year results. Chief executive Mark Selway highlighted progress made in revitalising the valve-maker's prospects: each of its three divisions exceeded its performance objectives.

IC TIP: Sell at 1380p

Moreover, Mr Selway reckons the recent £118m acquisition of power-generation valve specialist Bopp & Reuther has strengthened IMI's exposure to lucrative emerging markets and after-market demand. He also expects new product launches to help the engineer remain competitive.

But investments in innovation and group-wide IT services depressed the group operating margin by 70 basis points to 17.7 per cent. Investors should also note that the massive jump in reported earnings per share (EPS) primarily reflects £478m in profit from the group's disposal of its retail dispense business.

Looking ahead, any optimism surrounding the group's restructuring progress is soured somewhat by the outlook for 2015. IMI's critical engineering unit generates about a quarter of sales from oil and gas markets, where investments are being postponed in response to the lower oil price. The division that supplies flow-control systems, meanwhile, has also faced weaker nuclear markets following the Fukushima disaster in Japan.

In light of IMI's challenges, broker Investec is reviewing its forecasts and expects consensus EPS to fall by 3-4 per cent. It previously forecast EPS of 82p, up from 77p in 2014.

IMI (IMI)
ORD PRICE:1,380pMARKET VALUE:£3.8bn
TOUCH:1,379-1,381p12-MONTH HIGH:1,613pLOW: 1,108p
DIVIDEND YIELD:2.7%PE RATIO:6
NET ASSET VALUE:187p*NET DEBT:36%

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20101.9130666.426.0
20112.1330163.230.0
20121.6923067.932.5
20131.7424971.035.3
20141.69246243.437.6
% change-3-1+242+7

Ex-div: 9 Apr

Payment: 22 May

*Includes intangible assets of £368m, or 135p a share