Goldman Sachs cuts IMI stock rating, lowers price target to GBP21.20

Goldman Sachs downgraded IMI Plc. (LON:IMI:LN) to Neutral from Buy, lowering the price target to GBP21.20 from GBP22.20 due to factors including weakening US ISM manufacturing PMIs and increased foreign exchange headwinds. The firm reduced its FY25 EPS estimate from 133.1p to 129.8p, aligning with the lower end of company guidance, and forecasts for sales, adjusted EBIT, and adjusted net income have been decreased by approximately 5%, 5%, and 6% respectively for FY25. Consequently, free cash flow predictions for FY25 and FY26 have been reduced by about 9% and 8%.

Analysis

Goldman Sachs has revised its outlook on IMI Plc., downgrading the stock from Buy to Neutral and reducing the price target to GBP21.20 from GBP22.20. This revision is attributed to a confluence of factors including a recent softening in US ISM manufacturing PMIs, updates to capital expenditure trackers, insights from IMI's first-quarter 2025 trading update, and escalating foreign exchange headwinds. Consequently, Goldman Sachs has lowered its full-year 2025 earnings per share (EPS) estimate for IMI from 133.1p to 129.8p, positioning it at the lower boundary of IMI's own guidance range of 129p-136p. The downgrade reflects anticipated reductions in organic sales growth for IMI’s Automation and Life Technology segments, coupled with adverse foreign exchange movements and a diminished contribution from M&A activities. Despite maintaining a 20.1% group adjusted EBIT margin forecast, the firm projects a shift in IMI's business mix, with an increased weighting towards the Automation segment, particularly Process Automation and aftermarket revenues. Overall, forecasts for IMI’s FY25 sales, adjusted EBIT, and adjusted net income have been curtailed by approximately 5%, 5%, and 6%, respectively. This also negatively impacts free cash flow (FCF) projections, with FY25 FCF expected to decrease by about 9% and FY26 FCF by 8%, partly due to the earnings downgrade and an approximate £10 million rise in anticipated FY25 capital expenditures guided by IMI.

Key Decisions for Investors

• Investors should re-evaluate their positions in IMI Plc. given Goldman Sachs' downgrade to Neutral and the reduced price target, reflecting a more cautious near-term outlook.
• Monitor key external factors such as US ISM manufacturing PMIs and foreign exchange rate movements, as these are significant drivers of the revised forecasts.
• Pay close attention to IMI's capital expenditure plans and the performance of its Automation segment, particularly Process Automation and aftermarket sales, as these are expected to form a larger part of the future business mix despite overall reductions in sales and profit forecasts.