The Investment Column: IMI bashes out the goods for Pepsi

AT FIRST GLANCE it is not easy to see what Midlands metal basher, Gary Allen, has in common with the Spice Girls. But both are heavily involved with Pepsi. While the singers provide advertising jingles, Allen's IMI group produces drinks dispensers and good business it is too.

Out of IMI's1997 sales of pounds 1.43bn, 10 per cent now comes from Pepsi, Coca-Cola and McDonalds. Sustained demand from the US for the engineering company's products helped drive up sales by 12 per cent in 1997. Overall group profits before tax and exceptional items rose 7 per cent to pounds 146.5m but the strong pound meant IMI missed out on a further pounds 20m on the bottom line. IMI's basic pre-tax profits fell from pounds 161.1m to pounds 148.9m but the 1996 figure was distorted by pounds 26m of exceptional gains.

In an attempt to counter the strong pound it put pounds 7m worth of restructuring costs through last year and this will be repeated in 1998 as overheads are hacked back.

Out of IMI's four core areas: building products, drinks dispense, fluid power and special engineering, the later has been taking the biggest knocks. IMI closed its Yorkshire Alloys subsidiary and further assets in this area are earmarked for disposal.

But IMI has also been protecting itself with acquisitions and says this strategy will be continued in the second half of this year. The US and continental Europe are the more favoured regions at present .

Last year IMI beefed up its foreign presence, buying the Swiss-based industrial valve operations of Sulzer. It also bought plumbing products group, TA Hydraulics of Sweden, and Wilshire Corporation of the US.

It's remarkable to think back 20 years to when IMI was spun off from ICI. In those days 85 per cent of IMI's business came from the UK, now it is 30 per cent.

IMI is doing all the right things. Even with the home economy tipped to slow further, analysts expect IMI will make around pounds 160m pre-tax profits this year.

That would put the company, whose shares rose 8.5p to 458p yesterday, on a multiple of 15 times in line with the sector. The stock is worth holding on to.

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