Broker snap: IMI hit by Goldman downgrade after strong run

2nd Apr 2013 09:25

Shares in engineering group IMI were under pressure on Tuesday morning after Goldman Sachs cut its rating on the stock from 'buy' to 'neutral', saying that it is no longer materially mispriced.Goldman said in a research note that IMI has participated in both the market-wide re-rating between June 2012 and March 2013 and has a enjoyed significant company-specific re-rating. Meanwhile since January 2011, when the company was first added to Goldman's 'Buy List', the stock has jumped 45.4%, outperforming the FTSE World Europe index by 42% and the European capital goods sector by 34%.In February, the broker highlighted that IMI's 'buy' investment case was based on its balance sheet strength, ability to redeploy capital and reduced cyclicality. Meanwhile, the company's full-year results announced in March included a £175m share buy-back over the next 12 months, the potential disposal of its merchandising business and strong second-half Fluid Power margins."We believe that the major catalyst of the re-rating has now passed and therefore downgrade our rating to 'neutral' from 'buy'," Goldman said.The broker said that it continues to see IMI as a leader in the European capital goods sector but expects its organic growth to marginally underperform over the next three years. Nevertheless, the balance sheet will still allow it to provide "ample headroom for inorganic expansion".Goldman has raised its price target for the shares from 1,350p to 1,400p.The stock was down 1.1% at 1,281p in mid-morning trade.BC