The Investment Column: Hold on to IMI to see if industrial giant can engineer a recovery

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The Independent Online

Martin Lamb, the chief executive of IMI since 2001, has effected a nuts and bolts shake-up of a British engineering giant that can trace its history back to 1862.

The business is a bit of a sprawl, with divisions spanning pumps, air conditioning and drinks machines, but in the past four years IMI has upped its profit margins by concentrating on improving its manufacturing efficiency and shifting the focus of the business towards customers with most growth potential. Inevitably, that has meant pursuing growth in Asia rather than the UK, and these emerging economies now represent a double-digit percentage of sales.

There is more of this to come, which is just as well because an overview of its markets yesterday gave a distinctly average view of prospects. Asia and the US are robust, but the more financially significant UK and – especially – continental European markets offer little encouragement.

There are risks. Analysts have a wide range of views as to the likely proceeds from Polypipe, the plastics business making drainpipes, hoses and garden furniture, which is up for sale. Clearly, it is taking a worryingly long time to sell, not least because the high oil price is feeding through into higher raw materials costs. IMI shares will react badly if the disposal is abandoned or raises only a little cash.

The other, longer-term question mark is over the global economy. It looks as though growth has peaked, but it does not yet feel right to panic and ditch cyclical stocks such as IMI. Shareholders can afford to take a wait and see approach.

Sportingbet boosts fund manager

John Hatherly of M&G is leading the pack among our panel of professional tipsters with their recommendations for 2005. At the halfway stage, Sportingbet, the internet gaming group, is up a stunning 72 per cent, buoyed by the stock market excitement over online poker. He is a good few paces ahead of Andy Crossley, his rival at Invesco, whose tip of PlusNet – an expanding broadband internet service provider – is registering a 21 per cent gain.

There are other interim plaudits for Colin McLean of SVM, who tipped CES Software before its acquisition of (and name change to) Fun Technologies, and for Ralph Brook-Fox of Britannic, who tipped the mobile phone group O 2 for the third year in a row.

In all, our eight fund managers have enjoyed twice the growth of the stock market as a whole. And apologies: yesterday's graphic showing The Independent's own tips contained errors. A correct version will appear in tomorrow's Save & Spend section.

Xansa has an offshore wind in its sales

If you want a punt on the mushrooming phenomenon of "offshoring", look no further than Xansa.

It has long been a pioneer in the business of outsourcing, where companies hand over mundane administrative tasks such as payrolls and finance functions, to specialists who can do them quickly and more cheaply.

These days, these functions might as well be done in Uttar Pradesh as in Reading, so Xansa now has as many staff in India as it does in the UK. As companies increasingly get used to having these functions offshore, Xansa will move even more of its business, and share some of the benefits of the lower costs involved in operating in India. This rise in profit margins ought to be the story of the next couple of years for Xansa.

And it ought to be a fairly clean story, after several years messed up by the costs of shutting its over-ambitious expansion plans in Europe, the US and Asia.

Now it is focusing on its UK customers, with new blue chip clients including Prudential. It is also doing more on-shore work for the public sector.

The shares trade on 17 times next year's earnings, which looks OK for a business that has the wind of business trends in its sales.

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