IMI finals

IMI is a global engineering group focused on the precise control and movement of fluids in critical applications and comprises five platform businesses - Severe Service, Fluid Power, Indoor Climate, Beverage Dispense & Merchandising. I have a holding in my income portfolio (epic code: IMI).

Today IMI released their final results and excluding the Beverage Dispense and Merchandising divisions that were sold in January 2014, revenues were £1,743m, up 1% on an organic basis.

Adjusted operating profits grew 7% to £321.6m, and operating margins improved from 17.7% to 18.4%. 

Adjusted diluted EPS (Excluding both exceptionals and the non-continuing businesses) increased 12.2% to 71.7p.  Statutory EPS was 70.1p up 4.6% on last year, but excluding non-continuing businesses was 59.6p up 12.0%.

The final dividend has been increased by 8.7% to 22.5p, making a total dividend for the year of 35.3p, an increase of 8.6% over last year.  The dividend was covered 2x, although if we exclude the earnings from the businesses sold the cover was 1.69x.

Free cash flow was £252.2m, considerably higher than last year's £148.5m, although due to dividend payments (£106.2m), share buy-backs (£164.3m) and share bought for an employee scheme (£24.2m) net debt increased from £143.8m to £225.9m.  Net debt was covered 134% by operating cash flow and with debt to EBITDA at 0.5, IMI is in a strong financial position.  Gearing was  37.6% and interest cover more than 20x. 

Commenting on the outlook management said: "...Looking at the year ahead: in 2014, based on current market conditions and excluding the adverse impact of exchange rates, we expect the Group to deliver modest organic revenue growth in the first half with margins slightly lower than in the first half of last year and an improved overall performance in the year..." 

IMI disposed of their Retail Dispense Operations on 1 January 2014 for $1.1bn and have returned to shareholders £620m, reflecting this in a 7 for 8 share consolidation.

If EPS for this year moves up to say 74p (+3.2%), that has the company valued on a prospective P/E of almost 20x on a share price of 1459p, with a below average yield of 2.5% (assuming a ~5% increase in the dividend).  It looks to be fully valued for the time being and sets new CEO Selway a few challenges.  My returned capital (200p per share) will be looking for other stocks at this valuation - does not detract from the fact that IMI is still a quality business.