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Currency concerns haunt IMI

The Investment Column
Engineers and exporters have been about as popular among investors as a bull is in a china shop over the past few months. The rise in the value of sterling against other currencies, most notably the dollar and the mark, has hit overseas earnings.

IMI is one of the host of companies that have been affected by the negative sentiment. Its shares had fallen by 15 per cent since the start of the year, underperforming the stock market by more than a quarter before yesterday's interim results announcement.

At first glance it is easy to see why. Every time IMI makes an announcement, the group increases its forecast of the impact currency will have on profits this year. First it was pounds 10m, then pounds 15m, and now it is pounds 20m.

The worry is that half of this hit relates to falling export margins, as the group has been forced to lower prices to maintain volumes in the face of the soaring pound.

However the concerns mask IMI's encouraging underlying performance. It managed to confound its critics yesterday with first-half figures well ahead of expectations, causing the shares to jump 18p to 358.5p. Operating profits before exceptionals rose to pounds 70.4m from pounds 67.2m before and underlying profits, ignoring the currency hit, rose an encouraging 13 per cent.

IMI has successfully restructured its portfolio over the past few years, selling poor performers such as its titanium business and closing down its troubled alloys division. And a recent string of acquisitions are beginning to pay off, accounting for a third of the profit growth.

The best of the bunch is Heimeier, a German plumbing fittings maker, which has shrugged off the economic problems in its domestic market to produce good growth.

Tour & Andersson Hydronics, a Swedish heating parts manufacturer, looks another decent buy.

Its US businesses are also going well, thanks to a buoyant economy and a pleasing habit of being able to continue to pick up market share over there.

As always, however, IMI is a mixed picture. Its drinks dispenser business, for example, which sells dispensers to fast-food outlets through the likes of Pepsi and Coca-Cola, is doing well in the US but faces stiff competition in the fast-growing Far Eastern markets.

And currency worries are still likely to haunt the share price.

There is a concern among analysts that IMI has not yet felt the full effect of a rising tide of cheap imports from the Continent.

Even so, Panmure Gordon is forecasting full-year profits of pounds 147m, putting the shares on a prospective p/e ratio of 12.

IMI is slowly shrugging off its Midlands metal basher image and is now sitting on an unjustified 20 per cent discount to the market. Good value.