Broker snap: Investec ups target for IMI

27th Nov 2012 09:33

Investec has maintained its 'buy' rating for industrial engineering group IMI and raised its target price for the shares from 1,100p to 1,140p, saying that this month's third-quarter update showed the expected mixed of 'softness' and 'resilience'. "IMI's Q3 IMS contained news of softness where it was expected - in the truck sector and general pneumatics within Fluid Power - and the recovery in Severe Service will probably be less steep than we anticipated. Nevertheless, we do expect steady progress from IMI and we believe that the shares are undervalued."Investec has cut its earnings per share estimates to be broadly in line with consensus, and trimmed its expectations for the rate of recovery in Severe Service. Nevertheless, the broker remains upbeat over the longer term: "IMI has improved the quality of its portfolio and this is evident in rising margins over the last decade. We expect this trend to continue and to be reflected in a more appropriate (higher) share valuation."Investec believes that IMI deserves a "modest premium valuation" relative to the industrial engineering sector on the back of its above-average margins.The broker said that it sees a strong chance that IMI will dispose of its Merchandising division, and that both acquisitions and share repurchases could be on the agenda.BC