Investment Column: Deal-hungry IMI is ripe for the picking

Abbeycrest; Impax Asset Management

Nick Clark
Tuesday 26 October 2010 00:00

Our view: Buy

Share price: 828.5p (+15p)

IMI, the international valve-maker based in Birmingham, is shelling out €135m (£120m) for Germany's Zimmermann & Jansen (Z&J), in what analysts tip to be the first of a spending spree that could reach £1.8bn.

IMI's stock has been rising steadily since the middle of last year and looks set for strong months to come. The Z&J deal has much to recommend it. The target company has factories in Germany, the US and South Africa, as well as a sales and procurement office in China. Sales hit €125m last year and produced underlying profits of €15m.

There is also a strong fit in terms of both sales and technology. IMI is active in a whole range of industries from oil and gas to medical to automotive. But the German company's focus – in the refinery and petrochemicals industry and the iron and steel markets – will take IMI's "severe service" division into new areas. And although Z&J already has a global presence, with 40 per cent of its sales in emerging markets including Russia, India and China, there is plenty to be gained from IMI's larger global sales infrastructure.

City analysts not only commended yesterday's deal but said they expected more. Oliver Wynne-James, of Panmure Gordon, upgraded his earnings-per-share estimates by 2 to 3 per cent to reflect both the Z&J deal and IMI hitting its 15 per cent margin target earlier this year. Further acquisitions and the proposed non-core disposal programme also weighed in the stock's favour. "IMI offers decent value relative to other more highly rated specialist engineers in the sector," Mr Wynne-James said. We agree, so buy.


Our view: Hold

Share price: 5.75p (-0.25p)

The sparkle came off jewellery maker and designer Abbeycrest's shares a few years ago. Under its executive chairman Simon Ashton, who has been in charge since September 2008, Abbeycrest is heading upmarket. It is selling more branded jewellery and reducing its reliance on low-margin products to high-street stalwarts such as Argos.

But with tight financial constraints, Mr Ashton faces an uphill battle and Abbeycrest has traded as a penny share for more than a year, which suggests that investors are not convinced by its recovery story. Yesterday, the company gave the optimists cause for hope when it reported a five per cent uplift in revenues to £18.8m over the six months to 31 August. Furthermore, it touted a 14 per cent reduction in net debt to just £7m.

Yet the half-year results also contained several scuff marks. Abbeycrest's pre-tax losses, before exceptionals, widened to £460,000 during the period. While its upmarket brands division delivered a marginal improvement in profitability, its overall performance was dragged down by its mass-market "Essentials" division.

Abbeycrest will be keeping its fingers crossed that the crucial Christmas trading period delivers the goods, but we are more concerned about the anaemic trading conditions awaiting the jewellery maker next year. Largely for this reason, we advise caution. Hold.

Impax Asset Management

Our view: Buy

Share price: 59p (+4p)

Since Al Gore's extraordinarily successful documentary An Inconvenient Truth, corporations and governments have been banging the drum about the extent of their green credentials.

Beyond the simple glow of saving the world, more and more companies are springing up to make money out of the environmental drive. Impax Asset Management Group is one of these: an investment manager focused on the environmental sector.

In previous recessions, the company said environmental investing was swept away. Not so this time. Impax released preliminary results yesterday for the year ending 30 September, in which it forecast that revenues would be comfortably ahead of last year's, while assets under management have risen 45 per cent to £1.8bn.

Impax was set up 16 years ago but the past few years have changed it "out of all recognition", according to its chief executive,Ian Simm. The firm's conviction is driven not only by its results internally but by wider factors such as legislation, including the Renewable Energy Directive, and about $500bn worldwide in stimulus money earmarked for the green sector. It also sees Asia as a huge growth market and, last week, its investment trust targeting the region raised £131m.

Execution Noble has the stock on a price of 13.6 times the estimated earnings for 2011. The headwinds seem to be in Impax's favour, so buy.

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