Tuesday share tips: IMI, Serco

IMI stands to prosper when recovery returns – following efforts by the company over the past few years – but that prospect now looks more distant, the Financial Times´s Lex column said.

The industrial flow control specialist´s first half numbers suggested chief Mark Selway´s objective of doubling operating profits by 2019 might be overly optimistic.

Operating profits fell 23% alongside a 5% decline in sales and industry orders to the company´s critical engineering arm fell by a quarter, Lex pointed out – with a recovery doubtful as China scraps plans for new coal plants.

Shares also seemed overextended, having climbed to trade at 18 times earnings and the stock had outperformed the FTSE Industrials index by 18% since February 2016, thanks in part to weakness in Sterling.

Cash flow was one particularly bright spot in the firm´s numbers, having held steady in comparison to a year before.

Even so, “the shares need to let off a Little steam”, Lex concluded.

Serco chief executive Rupert Soames appears to have steadied the ship somewhat after the company suffered disastrous after-effects following its prisoner tagging scandal in 2013, according to The Times' Tempus column.

The shocks that encompassed the outsourcing firm, after it ripped off taxpayers by producing electronic tags for non existent prisoners, would go on to blight its prospects for the following years, but optimism has resurfaced.

Public sector clients are still wary of the prison contractor, but Soames has put an end to various loss-making contracts, contributing to efficient cost-cutting and a reduction of the company's debt.

For the second time this year, Soames' company made the stock market aware that the year's profits will be higher than expected, and although a significant factor in this is the weakening of the pound, the foundations for a solid showing are there.

New contracts are starting to come through the doors of Serco once again, with deals announced with UK healthcare services, and prisons in Australia.

Tempus urges investors be patient, as the long-term prospects look promising, but any small slip-up could bring the company right back to square one.

"Hold", was the advice from the tipster.