Investment Column: IMI has what it takes to engineer gains

SIG; Playtech

Our view: Buy

Share price: 807.5p (+22p)

The last time we looked at IMI, we decided to buy as we were pleased with the engineering group's deal to buy Germany's Zimmermann & Jansen. Since then, IMI's shares have helpfully gained ground. The question in light of yesterday's results and the growing concerns about global growth is whether it is time to bank profits, or bet on the company's strengths.

First, it is worth noting that the business, which makes everything from power-generation equipment to valves for drink dispensers, posted some strong figures. Adjusted pre-tax profits for the half-year to the end of June were up 26 per cent, on revenues that rose by 12 per cent.

Given its geographical breadth – IMI's operations span North and South America, Europe, the Middle East & Africa and the Asia-Pacific region – the company is exposed to all manner of economic trends. Crucially, however, it said yesterday that "whilst noting some slowdown in industrial demand in Southern Europe and the UK, we have, more generally, not yet seen any material change in underlying order trends since the end of June".

That is encouraging. And although it does face headwinds in some activities, most notably nuclear power, where the industry has been hit by the fallout from the disaster in Japan, overall it does not foresee the sort of sudden slump that the world endured during the credit crunch.

Indeed, as chief executive Martin Lamb points out, the wave of destocking that hit the sector when customers decided to run down their inventories rather than place new orders was the consequence of the fact that stockpiles were bulging after being built up in the run-up to the crisis. Today, inventories are not nearly as strong, given that the slump was fairly recent.

Adding to the attraction for us is the fact that, at around 10 times forward earnings for this year and under 10 times on the estimates for next year, IMI still looks affordable. It's not cheap. But it's worth it.

SIG

Our view: Sell

Share price: 100p (-6.5p)

The insulation and roofing firm SIG operates in what can only be called tough markets. Construction activity remains relatively weak, and economic growth across its markets in Europe and the UK is looking increasingly questionable.

The fact that governments of every hue are vying to outdo each other with austerity measures to curry favour with bond traders doesn't help either.

In the UK, the Coalition is firm in its desire to take an axe to spending. This presents challenges for SIG, which draws around 6 per cent of its annual revenues from new building programmes in the UK public sector.

To be fair, the company was forthright about the challenges, saying: "The board continues to expect growth in the second half to moderate, due to a combination of stronger comparators in both regions in which SIG operates, a weaker economic backdrop and the effect of public-sector spending cuts in the UK."

We opted to hold in August last year. Since then, after rising and then falling sharply, the stock is back up, leaving us with a nice profit. We would bank that and wait for the headwinds – which are not of the company's making – to pass before buying again.

Playtech

Our view: Buy

Share price: 303.25p (-13.25p)

If there is one thing that investors do not like, it is uncertainty. It was, therefore, not too surprising that Playtech's announcement alongside its first-half figures yesterday that it was deferring its decision on its interim dividend until its full-year results triggered a drop in its share price.

Still, cooler heads must admit that the online software group's excuse did make sense. It said that it is involved in a number of discussions that could end up in it making either acquisitions or fresh tie-ups, and so, quite sensibly, it wants to keep hold of the cash for now.

Indeed, it bodes well that the company described the potential deals as "exceptional... opportunities" and, with its joint venture with William Hill generally perceived to have gone well, there is certainly the potential for them to prove exciting.

Playtech's figures, meanwhile, were strong, with total revenues jumping by nearly 20 per cent. It also said that it was set to meet its full-year forecasts.

Those of a cautious disposition may well want to wait on the sidelines and find out exactly what these "opportunities" are. For our part, the results and the sell-off that has helped to push Playtech down by 19 per cent since the start of the month, makes this a worthwhile opportunity even without the full details. Given its record, we are confident that deals will be positive.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
News
people
News
20. Larry Page: Net worth: $23 billion; Country: U.S; Source of wealth: Google
business
Life and Style
tech
Arts and Entertainment
A collection of 30 Banksy prints at Bonhams auction house in London
art
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness