IMI is well into a restructuring programme that will bring forth exciting new products in several of its markets, if the sort of vital valves and actuators that it makes can be described as exciting. The company has the potential to improve its position further as a global leader in those markets. This puts IMI on target to achieve the doubling in profits it is seeking by 2019.
Events have, however, intervened. IMI is exposed to global markets, to German producers of industrial machinery bound for China, to Brazil, where vehicles heading there are supplied by its American business, to oil and gas through its Critical Engineering business, and to the euro.
This last, and the strength of sterling, was a feature of the warning that came out with the half-way figures in July, and yesterday’s third-quarter trading statement said that the weakness of the European currency would take 4 per cent off both revenues and profits this year.
On the upside, its exposure to oil and gas largely involves supplying liquefied natural gas producers, a market that is holding up well and involves significant replacement aftersales at something like twice the margins on the original equipment. It will gain as the various Japanese nuclear reactors that were shut down after the Fukushima disaster come back on stream and require fresh parts.
The only positive movement in revenues in the third quarter is a significant one. Its hydronics side, which supplies heating and cooling systems, is starting to reap the benefits of new products coming to market. This is a relatively short-cycle business, and similar gains will come through from other parts of the group in due course.
IMI, too, has various levers it can pull to improve short-term performance, not least cost savings. Action has been taken in Brazil and the UK. Revenue targets across the group will probably be met eventually, as the underperformance reported for the third quarter is mainly the result of cautious customers delaying orders, leading to a temporary gap in the workload.
This has meant some profit downgrades for the full year, and the shares lost 76½p to 899p. They sell on 15 times earnings and look a very good bet long term, but there seems no reason they should rise just now.
MY ADVICE Avoid for now
WHY Events on global markets have derailed a promising recovery programme, and no obvious reasons for share price gain
Wincanton
Revenue £583m
Dividend nil
To judge from the share price reaction, the market does not appear to have appreciated the significance to Wincanton of the sale last week of its data management business. This leaves it as a pure logistics company, shipping goods around the country for the big grocers and for home deliveries. The company has also been held back in recent years by its high level of borrowings, £124 million at the halfway stage at the end of September.
The sale will reduce these by £40 million once the dust has settled, a figure much more in line with earnings, which could lead to the resumption of dividend payments when the full-year figures are released next summer. None of this was in the halfway figures.
These showed strong progress in contract logistics, which serves those grocers, cancelled out by challenging conditions in a volatile containers market and losses at its Pullman business, which maintains other vehicle fleets and is just exiting two unprofitable contracts. Pre-tax profits were little changed at £12.9 million. The shares, off 7p at 198p, sell on an undemanding ten times earnings and look worth tucking away.
MY ADVICE Buy long term
WHY Shares deserve rerating after data management sale
Premier Oil
Size of Sea Lion field 1bn barrels
Premier is one of the best positioned of all oil producers to benefit from any rise in the price. It is well capitalised and able to fund future projects, including Sea Lion to the north of the Falklands, and Catcher, the North Sea well that will start to produce in 2017.
It has the financial firepower to take advantage of any assets that come to the market cheap. Indeed, it now has a 100 per cent holding in the delayed Solan field that comes on stream next month because its partner offloaded its stake rather than repay a $277 million loan. Across the group, the producing assets, including those in Vietnam and Indonesia, are cash generative at about $30 a barrel, well below even the present oil price.
Premier is selling some non-core assets in Pakistan, which will raise a further $125 million to $150 million. The company has confirmed this year’s production forecasts, targets that have been missed in the past. It is moving ahead with those Falklands wells, with the option of slowing down the project if the oil price does not recover towards the end of this decade.
Cost savings of 25 per cent have been delivered for this year, with a further 5 per cent to 10 per cent possible next year. Like the other operators, it has hauled back on capital spending and exploration costs. Yet the shares have come back from about 350p in August last year and lost another 2½p to 69½p on yesterday’s update. For those prepared to take a very long-term view, they look to have hit their lowest ebb, though immediate progress will be slow.
MY ADVICE Buy long term
WHY Premier as well placed as any to weather low oil price
And finally ...
The £4.3 billion bid for Rexam by Ball, its US rival, trundles through the regulatory process but there seems no reason, despite reports to the contrary, why it should not complete as expected in the first half of next year. Ball has tidied up its Brazil operation. Progress is being made, more importantly, in the United States and in Brussels. There was nothing untoward in a positive third-quarter trading statement. Rexam investors will just have to be patient in awaiting the 611p a share the offer is now worth.
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