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IMI upped to buy as Liberum eyes margin expansion following restructuring

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IMI PLC (LON:IMI) has been upgraded to ‘buy’ from ‘hold’ by analysts at Liberum, who said they expected earnings quality and margins at the engineering firm to “greatly improve” as benefits from a restructuring began to come through.

In a note on Wednesday, the broker also hiked its target price for the FTSE 250 firm to 1,500p from 1,000p as they forecast that after stagnating at 14% between 2016-19, they expected IMI’s margins to reach 16.5% in 2022 as a result of structural cost savings and pricing improvements as well as “strong volume growth” in its Precision business.

READ: IMI upped to overweight as JP Morgan says investment case compelling following challenging period

Liberum also said that the company’s earnings quality had been “questioned given constant restructuring charges”, however, they expected high quality earnings in the future as higher margins meant less restructuring is required.

Analysts also highlighted that the firm’s underlying 2020 margin of 13% during the pandemic was only 100 basis points below its “historic through-cycle margin”, which they said, “demonstrates the structural step up in margin profile”.

The broker added that they expected earnings quality to improve as one-off charges subside.

Shares in IMI rose 2.6% to 1,197p in mid-morning trading.

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