Skip Header
Important information: The value of investments can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This is a third-party news feed and may not reflect Fidelity’s views.

Outlook finally improving for IMI and Rotork, says Berenberg

(Sharecast News) - Berenberg has upgraded its rating for engineering group IMI from 'hold' to 'buy', but has named peer Rotork as its top pick in the sector. Both IMI and Rotork should be considered "some of the highest-quality businesses in the UK industrials sector, as seen by their margins and returns," Berenberg said in a research note on Monday.

However, both stocks have delivered underwhelming performances over the last decade, driven by minimal-to-negative organic growth, the broker said. Over the decade to 2022, Rotork's organic growth averaged out at -0.4% per annum, while IMI grew by just 0.2% per annum - significantly underperforming the wider sector.

"Fortunately, we believe this prolonged period of underperformance has passed, and that both IMI and Rotork finally look set to deliver a consistent period of top-line growth while maintaining their sector-leading margin and returns profiles."

The broker said that both companies should benefit from a combination of "supportive cyclical tailwinds" like improving global energy markets, trends like automation, electrification and investments into emission reductions, as well as significantly improved business mixes versus their recent history.

"We believe that the outlook has finally improved. The oil and gas market is set for a significant catchup investment period after years of undersupply. Both companies have improved their weighting to higher-growth end-markets, while increasingly benefiting from automation and electrification trends. We believe that both will deliver mid-single-digit organic growth over our forecast period, with Rotork potentially ahead of this level."

Rotork currently trades at 20 times earnings, while IMI trades at just 13 times.

Berenberg has raised its target price for IMI from 1,605p to 1,950p but cut its target for Rotork's shares from 420p to 370p.

Share this article

Related Sharecast Articles

Billionaire Issa nearing deal to sell Asda stake to TDR Capital - report
(Sharecast News) - US private equity firm TDR Capital is reportedly closing in on a deal to buy petrol station billionaire Zuber Issa's stake in supermarket chain Asda.
Billionaire Issa nearing deal to sell Asda stake to TDR Capital
(Sharecast News) - Private equity firm TDR Capital is reportedly closing in on a deal to buy petrol station billionaire Zuber Issa's stake in supermarket chain Asda.
DS Smith tumbles as Mondi abandons pursuit
(Sharecast News) - DS Smith tanked on Friday after Mondi said it would not be making an offer for the rival packaging group, clearing the path for a takeover by International Paper.
Eqtec agrees amendment to Verde subscription
(Sharecast News) - Waste-to-energy technology developer Eqtec updated the market on the Verde Corporation subscription on Friday, confirming that an amendment to the subscription letter had been agreed upon with Verde.

Important information: This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Past performance is not a reliable indicator of future returns.

Award-winning online share dealing

Search, compare and select from thousands of shares.

Expert insights into investing your money

Our team of experts explore the world of share dealing.