IMI engineers good progress in tough conditions

ORIGINALLY founded in the 19th century as a percussion cap factory, IMI is a global engineering services firm.

In May IMI released a confident trading statement highlighting organic growth of 6 per cent In May IMI released a confident trading statement highlighting organic growth of 6 per cent

The group was renamed IMI (Imperial Metal Industries) in 1962 and encompasses five main business activities – fluid power, severe services, indoor climate systems, beverage dispensing and retail display technologies.

In May IMI released a confident trading statement highlighting organic growth of 6 per cent and expressed confidence in making “good progress in 2011”.

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The fluid power business has had a solid start to the year with strong sales growth, especially in the US.

This more than offset some weaker performance from severe services sales, which were down 10 per cent on a weaker order intake. We foresee strong growth in fluid power, as well as modest margin enhancements across the group. The balance sheet remains strong, with net debt at £145million.

We estimate that IMI has substantial headroom to pursue acquisitions and management has indicated a strong pipeline. We think IMI presents a compelling story for investors. Its core end markets are seeing continued growth, management has instigated efficiency initiatives and balance sheet strength remains in place for targeted purchases.

Although some of IMI’s end markets are still recovering, we believe that profit margin expansion should continue, helped by pricing power. Our fair value for the stock is 1126p, against Friday’s close of 1067p.

However, a number of risks remain with IMI and other industrial stocks such as a slowdown in key markets, competitive concerns and R&D risks within some key product ranges. Legislation impacting energy efficiency measures could potentially weigh on sales.

The potential for mergers and takeovers can also impact share price movement.

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