Birmingham-based engineer IMI (IMI) cranked up 5.5% to £13.31 after announcing a £175 million 12 month share buyback programme and providing a robust outlook for the second half alongside its preliminary results.

The FTSE 100 company, which specialises in the movement of fluids in critical applications, said that while it expected business to remain subdued in the first half of 2013, activity is likely to ramp up as the year progresses.

Having advanced 47% to record highs in the last six months, the shares enjoy a premium rating (15.3 times consensus forecast 2013 earnings), but, for the time being at least, the market appears comfortable with paying this price given the growth potential on offer.

The numbers for 2012 were broadly in line with market expectations. Adjusted pre-tax profits of £366.3 million up slightly on the 2011 level of £363.4 million. Management also announced its intention to sell its merchandising business which broker Numis notes 'should re-rate the shares' and Citigroup estimates could be worth around £200 million.

The £4.2 billion cap's operating margin slipped slightly year-on-year from 17.5% to 17% but the group is aiming for considerable improvement in this area going forward. At a capital markets day in October 2012, the £3.8 billion cap outlined a medium-term plan to increase its operating margin to 20%. In order to achieve this it will concentrate a higher proportion of its activities in its 'sweetspot' - the areas where it is the clear market leader, can offer a differentiated product and achieve higher margins.

According to IMI, around 55% of its business currently falls into this category and it expects to increase this to 75% over the next five years. Oriel Securities estimates that, by 2014, 85% of the group will be delivering a 20% margin.

Citi analyst Mark Fielding, who has a buy rating on the stock and a target price of £14, says: 'IMI remains our top pick in the UK engineers. We are attracted by the attractive near-term earnings per share momentum and further medium-term structural growth potential in sales and margins. The addition to this of positive strategic steps in terms of the planned merchandising divestiture and potential £175 million share buy back further supports our case.'

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Issue Date: 07 Mar 2013