SocGen downgrades IMI, sees little upside surprise in next 12 months

Societe Generale downgraded IMI to ‘hold’ from ‘buy’ and slashed the price target to 975p from 1,350p after the company said on Thursday that earnings for the year would be at the low end of market views.

“We remain upbeat on the longer-term benefits of the strategic turnaround programme but with global industrial demand taking another leg-down we see little scope for upside surprise over the next 12 months.”

It said the third-quarter statement confirmed a highly challenging operating environment with sales down 5% LFL year-on-year.

With a further fall in 2016 sales and management highlighting rising competitive pressure, margins in the critical engineering division look set to be capped next year at a lower level. IMI also ruled out M&A in the short term given the macro, removing another potential earnings catalyst, the bank said.

SocGen said it reckons it will be 2017 before IMI has a stable demand platform from which to deliver upside from its various strategic initiatives. It now forecasts an organic sales decline of around 3% for 2016 and broadly flat margins on a lower level.

At 0938 GMT, IMI shares were down 3.5% at 868p.