Investors warm to IMI shares as 'early stage Weir'

The fomer West Midlands metal-basher has come a long way over the last decade but there is more upside yet say some shrewd investors.

Imperial Metal Industries (IMI) started its life as a West Midlands metal basher and listed on the London Stock Exchange back in 1966.

It is a relatively diversified business with five separate divisions; severe service, fluid power, indoor climate, beverage dispense and merchandising.

Along with the rest of the sector, it suffered in an indiscriminate sell-off which saw shares fall as low as £2.30 in 2009, although it had already managed to negotiate a difficult period due to certain accounting discrepancies in its US business back in 2005. IMI is currently trading at 760p – off its year high of 786p, but well above its 52-week low of 583p.

A renewed focus on improving margins has seen the company become a more focused and profitable business, with chief executive Martin Lamb credited with turning the business round and improving margins. Much of the modernisation process was painful, with a raft of job losses endured through the last decade.

The first thing Lamb did was to reducing costs by moving the firm’s manufacturing base out of the UK to lower cost countries such as Mexico, and he has continued to add value with a renewed focus on developing higher value and higher margin products.

Shrewd managers and analysts believe the stock is still attractively priced despite a rally from last month’s interims and should offer further upside over the near to mid term with clear earnings visibility running through 2011.

Bullish on further growth prospects

Threadneedle owns the stock across Leigh Harrison’s UK equity and income funds, Simon Brazier's UK Growth fund and Simon Haines’ UK Mid 250 fund.

Haines told Citywire the group remained very bullish on its prospects, describing it as an ‘earlier stage Weir Group’ with much growth potential from its access to Chinese markets in particular.

Jupiter Income manager Anthony Nutt is a long-term supporter of the company, having held the group on and off since he took over the fund from William Littlewood a decade ago. At 23 September, Nutt held  a 1.77% stake in IMI.

Nutt rates chief executive  Lamb, who he says has steered the company through a number of difficult economic cycles but has still managed to meet profit margins.

‘It would have been out of favour when then the market bottomed in 2003 but he has subtly shifted the business towards improving margins. ‘