The Investment Column: Trouble in pipeline at IMI
Tuesday 07 September 1999
Group profits are dominated by the hydronic controls division - plumbing technology, if you prefer - which saw profits fall 15 per cent in the period largely because of its loss-making copper-smelting activities. They are being closed with the loss of 210 jobs. The division meanwhile suffers from weak markets elsewhere; stripping out the contribution from Polypipe, its profits halved. Unfortunately, the second quarter is traditionally Polypipe's strongest. It will not come to the rescue again in the second half.
IMI's drinks-dispensing businesses offer little comfort either. Coca- Cola, IMI's principal customer, has cut back investment in IMI's hi-tech dispensing machines. Whilst deals to supply fancy new dispensers to McDonald's have to some extent offset that, there are no signs that Coca-Cola is about to start spending again.
Pricing pressure in the markets of the fluid power business, which supplies the autos industry, has prompted the group to spend two-thirds of its pounds 10m first-half rationalisation charge on restructuring.
The smaller energy controls business was a casualty of the Asia crisis, though it did receive a $10m (pounds 6.3m) order related to the construction of a Chinese power station.
IMI's cost-cutting programme should save pounds 25m annually. The group claims that all its markets, except for drinks dispensing, are showing encouraging signs of recovery. But while trading is up a modest 3 per cent from the beginning of the year, the short-term outlook looks pretty unexciting, given that dispensing's problems will obliterate any uplift elsewhere.
The shares are well off the 532p high they hit before the sector was re-rated last year. Could now be the time to pile on for the long-term? The market seems to think so - it pushed the shares up 22.5p to 328p yesterday. That looks over-optimistic, however.
The Polypipe deal still leaves IMI catering to three sluggish markets and with an energy business saddled by lumpy, unpredictable orders. On analysts expectations of pre-tax profits of around pounds 142m and earnings 27p per share, IMI commands a forward price/earnings ratio of 12. Given the lack of obvious earnings momentum, that's fair. Investors should consider selling on shares' recovery while they still can.
- 2 David De Gea: Manchester United goalkeeper's £29m move to Real Madrid off - because paperwork 'not done in time'
- 3 Pansexual: What is it - and when did the term gain popularity?
- 4 A Chinese journalist has appeared on state television 'confessing' to causing the stock market chaos
Miley Cyrus calls out hypocrisy of women’s nipples being taboo
The man who sold Minecraft to Microsoft for £2.5 billion says it's made him miserable
Nazi 'gold train': Fire engulfs suspected location of vehicle in Poland
Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
Isis releases graphic video showing four Shia 'spies' being burned alive in Anbar, Iraq
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
Tony Blair attacks Jeremy Corbyn's 'Alice In Wonderland' politics
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
UN investigating British Government over human rights abuses caused by IDS welfare reforms
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...