Broker snap: UBS cautious on growth prospects for IMI

5th Mar 2012 09:16

UBS has raised its target price for FTSE 100 engineer IMI but maintained its neutral rating, saying that the group is improving margins at the expense of growth.On Friday, IMI revealed a solid finish to 2011 "with no marked deterioration in November/December". Results beat expectations but were helped by non-operational items, UBS said."Management continued delivering on margins, testament to their 'Sweetspot' strategy and cash flow generation was good too. However, Severe Service margins disappointed as operational difficulties weighed," the broker said.With macro concerns easing, UBS says that the company is now past the threat of a big volume drop. While the organic growth rate remains in the low single-digit rate in 2012 (around 2%), the broker has raised its earnings per share forecast by 8% as a result of M&A, tax and share count. The target price is lifted from 900p to 950."We like the returns profile at IMI and management have executed a great margin story. We are slightly concerned on the lack of growth though as the 2011 pace of 5% is the lowest in the sector. Headwinds remain in 2012 too which means achieving 2x GDP looks a stretch."The broker says that while a price-to-earnings multiple of 11-12 may seem cheap, it is deserved given the lack of growth.BC