Credit Suisse upgrades IMI, downgrades Rotork

Credit Suisse has upgraded IMI to ‘outperform’ from ‘neutral’ and downgraded Rotork to ‘neutral’ from ‘outperform’, lifting the former’s price target to 1,220p from 1,020p and cutting the latter’s to 250p from 230p.

The upgrade of IMI is on the basis that around 60% of its end markets are depressed but have scope to recover. CS reckons that supported by cost cutting, the company’s margins can positively surprise.

CS noted than on an organic basis, IMI’s group revenues are 10% below 2014 levels with Oil & Gas and Nuclear markets significantly more depressed. The bank sees improving lead indicators for IMI’s business and expects organic growth to trough in 2017, particularly in the Critical business, which has driven earnings downgrades.

“We also think that IMI stands out as a short-cycle name where valuation attractions will increasingly come into focus when rolling forward to 2018. We increase our 2017-18 EBIT forecasts by 5%; we are 5% ahead of consensus.”

Credit Suisse said the downgrade of Rotork was mostly a valuation call as its view of the high quality of the company remains unchanged and it continues to expect growth to outperform its end markets and earnings per share to grow double-digit, supported by value-accretive bolt on deals.

“However, with the shares having re-rated versus UK capital goods by 25% since mid-September and with an ongoing sluggish outlook for mid/downstream O&G markets, we view the shares as fairly valued.”

At 1047 GMT, IMI shares were up 4.4% to 1,175p and Rotork was down 1.2% to 255p.