LONDON (ShareCast) - (ShareCast News) - Liberum has begun coverage of engineer IMI with a 'buy' rating as it sees an improvement in costs leading to earnings forecasts standing 15% ahead of the analyst consensus.
The broker said that two-thirds of the Precision division's margin decline has been due to selling and administrative expenses, which it believes will normalise this year, which would be enough to meet 2018 consensus' margin estimate.

Based on peer group analysis, analysts suggest the high-margin aftermarket for the Critical division "may have stabilised" and so an order recovery in the first half of 2017 would drive 8% EBIT upgrades in the unit and 2% for group earnings per share.

A forecast of £0.3bn for earnings before interest, tax, depreciation and amortisation for 2016 remains flat for 2017 before rising to £0.4m for 2018.

"Our 2018 EBIT is 15% ahead of consensus, due to our detailed cost analysis and our 4-5% early-cycle organic growth vs 2-3% consensus, driven by our early cycle indicator," analysts wrote in a note on Wednesday.

This means the enterprise value is 12.7 2018 EBIT, an 8% sector discount versus a 10% premium on consensus.

Maintaining that premium generates Liberum´s target price of 1,460p that offers around 20% upside on the last close.

Email this article to a friend

or share it with one of these popular networks:

• DIGG
• FACEBOOK
• STUMBLEUPON
• MIXX
• YAHOO BUZZ
• DELICIOUS
• REDDIT
• NEWSVINE