Join our community of smart investors

IMI resurrects its dividend

The engineering group saw demand for its ventilator components soar in the six months to 30 June, while cost-cutting bolstered margins
July 24, 2020

Engineering group IMI (IMI) may have seen its revenue fall by 5 per cent in the six months to 30 June, but increased margins helped lift its adjusted operating profit by 3 per cent to £121m. Actions to cut costs in response to the Covid-19 pandemic as well as productivity gains and value pricing boosted the margin by 1 percentage point to 14 per cent.

IC TIP: Hold at 1,085p

In the largest business, precision engineering, revenue fell by 7 per cent driven by an accelerated decline in commercial vehicle sales – the pandemic amplified the downturn in the automotive industry stemming from US-China trade war pressures. Still, this was partially mitigated by a “temporary surge” in orders of its ventilator components, sales of which jumped by 82 per cent year-on-year. This boon is expected to continue in the second half of the year, although IMI is guiding that overall precision organic sales and profits will be 10 per cent lower in 2020 than 2019.

The group’s restructuring efforts have continued, delivering £19m of savings in the first half at a cost of £10m. But pandemic disruption has delayed efforts to rationalise the footprint of its precision business and address oil and gas market weakness in its critical engineering division.

Net debt reduced by 4 per cent from the December year-end to £420m, equivalent to 1.2 times cash profits (Ebitda). IMI has reinstated its final dividend for 2019 and also declared a reduced interim payout. The group has reset its 2020 dividend to be covered 3 times by earnings.

If current market conditions continue, the group expects an adjusted EPS of 65-70p for the full year – analyst consensus compiled by FactSet anticipates 59p – down from 73.2p in 2019.

IMI (IMI)    
ORD PRICE:1,085pMARKET VALUE:£ 2.9bn
TOUCH:1,084-1,086p12-MONTH HIGH:1,215pLOW: 620p
DIVIDEND YIELD:3.1%PE RATIO:19
NET ASSET VALUE:309p*NET DEBT:50%**
Half-year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201991092.727.314.9
202086793.627.37.5
% change-5+1--50
Ex-div:06 Aug   
Payment:11 Sep***   
*Includes intangible assets of £648m, or 239p a share, **Includes £90.7m in lease liabilities, ***Delayed 26.2p final dividend for 2019 will also be paid on this date