JPMorgan upgrades IMI to 'overweight'

JPMorgan Cazenove upgraded engineer IMI to ‘overweight’ from ‘neutral’ on Tuesday and hiked the price target to 1,300p from 1,100p, noting the stock has underperformed over the past five years as a challenging 2014-2018 period led to a dislocation between narrative and financials and resulted in "investor fatigue".

JPM said its analysis of both the 2014 and 2018 period and the progress since, suggests that for the first time in a number of years the strategy, financials and valuation are in sync, creating a "compelling investment opportunity".

"It is impossible to ignore the disappointing share price and headline financials; however, we believe there is some mitigation and indicators of potential upside for the coming years; 1) IMI's underperformance versus our 'Synthetic IMI' is less pronounced, speaking to market-specific challenges, 2) Pressure on margins in 2014- 2016 can be partly explained by increased investment for growth, 3) Investment in SG&A, R&D and capex was above historic levels through the period.

"We see this increased investment alongside the focus on operations as having the potential to deliver a benefit to IMI financials as volumes recover."

JPM said IMI is attractively valued across all metrics, trading at a 10-year low versus the MSCI Europe Capital Goods and being one of the cheapest stocks in its sector on historic relative multiples. It is also at a "significant” discount to JPM’s sum-of-the-parts implied fair value of around 1,500p.

At 1040 GMT, the shares were up 3.4% at 1,137p.