Broker snap: Jefferies ups IMI to buy

19th Apr 2012 10:09

Jefferies has raised its recommendation for engineering group IMI from hold to buy, saying that while the group isn't exactly geared for high growth, it does provide high returns."IMI is a curate's egg of a stock in some respects. A conglomerate with five divisions, it seldom fires on all cylinders and is by no means a high growth business (in terms of sales or earnings), but RoS [return on sales] and ROCE [return on capital employed] are high and the shares are good value, we believe," said analyst Andy Douglas.Meanwhile, the US broker highlights that IMI's M&A opportunities are a "key debating point". It predicts that the group will continue to make bolt-on acquisitions rather than "significant" deals and says that the market "is more obsessed about IMI disposing of the Retail Dispense businesses than management are"."Whilst the valuation appeals, so does the scope for acquisitions on the back of a strong balance sheet and healthy pipeline," Douglas added. He recommends to buy the share at or around the current level, rather than chasing them at higher levels.The stock is trading at 11.1 times 2012 earnings, around a 21-22% discount to the sector average which is "inappropriate" according to Jefferies.The target price is hiked from 840p to 1,150p.Shares were trading 2.14% higher at 980p on Thursday morning.BC