Peel Hunt points to 'pivotal' years at IMI and Renishaw in sector review

Peel Hunt highlighted 2018 as being "a pivotal year for IMI", as the broker expected to see the company generate organic revenue growth for the first time since 2014 as it enters the "up to full speed" phase of its strategy execution timeline.

The analysts pointed to the launch of IMI's first new platform products in Precision as a key driver, coming after its slightly disappointing new product launch process in Hydronics.

IMI's acquisition of Bimba for $198m was also likely to double its industrial automation presence in North America, something Peel Hunt expected to further infill in the current year.

Peel Hunt nudged its 2018 EPS number by 0.2p to 69.2p, while 2019 went up by 3.4% to 76.5p, with the of organic revenue growth predicted to top 3% followed by 3.9% and 3.8% respectively for 2019 and 2020.

"Our target price is based on a 2018 EV/sales, EBIT margin correlation of 1.4x, which comes through at 1,250p. On this basis, we can nudge our recommendation to 'add' from 'hold'," the analysts said.

On Renishaw, which Peel Hunt referred to as a "superb business", the analysts gave it a "premium rating", but noted it was "not bullet-proof", and that its communication with the market had not always been sufficient for it to feel completely comfortable with its forecasts.

Peel Hunt singled out some longer-term concerns about Renishaw's management succession scenarios, but noted that as shares were coming back to within 5% of its target price, it made the move to bump its recommendation back up to 'hold'.

Renishaw itself anticipates full-year revenues of £575-605m, and a pre-tax profit of around £136-156m, while consensus was at £599.6m and £140.1m, while the broker itself had pushed for £601m and £144.5m.

The analysts highlighted that Renishaw's key to profitability will be its progress in Healthcare, which it expects to break even by the end of FY19E.

"Our TP equates to a PER of 24.6x FY19e, a premium that reflects the quality of the Renishaw business," the analysts concluded.