IMI (LSE:IMI) Launches Supply Chain Software In Europe, Is The Stock Fully Priced?

The recent focus on IMI (LSE:IMI) stems from fresh valuation work suggesting the share price embeds a sizeable premium to projected cash flows, at the same time as its full supply chain software suite launches across the UK and Europe.

Recent trading has been choppy for IMI, with a 1 day share price return of 1.02%, a 7 day share price return that fell 4.18%, and a 30 day share price return down 3.68%, even as the year to date share price return sits at 19.20%.

Set against that shorter term wobble, the story over longer horizons looks very different. The 1 year total shareholder return of 32.26% and the 3 year total shareholder return of 113.23% point to strong compounding, while the 5 year total shareholder return of 92.57% underlines how long running the re rating has been as IMI rolls out its supply chain software offering and investors reassess what they are prepared to pay for its cash flows.

Compare IMI's premium pricing and software rollout story with other industrials by scanning our hand picked shortlist of list of solid balance sheet and fundamentals (9 results).

After a 19.20% year to date climb and multi year compounding, IMI now trades at a level that recent cash flow work flags as rich. Does that premium still leave enough upside for new buyers, once valuation is unpacked?

Most Popular Narrative: 9% Undervalued

In the latest analysis, IMI's most followed valuation narrative points to a fair value of £32.66 compared to a last close of £29.80. This places the current cash flow premium in a different light.

Robust capital allocation discipline, including a pathway to £1 billion in free cash flow over three years and ongoing bolt-on M&A focused on long-term growth markets and technology, provides potential for further EPS expansion and enhanced capital returns.

See why 15 investors see IMI as 9% undervalued.

Result: Fair Value of £32.66 (UNDERVALUED)

Still, IMI's reliance on higher margin aftermarket income and its recent cyber attack leave real execution and resilience questions if disruptions or security costs escalate.

Find out about the key risks to this IMI narrative.

Another View On IMI’s Valuation

The DCF work on IMI paints a very different picture. Our DCF model points to a future cash flow value of £22.53 per share compared with the current £29.80 price, which implies the stock screens as expensive on this method. How comfortable are you with paying above what the cash flows suggest?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out IMI for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 7 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Mixed signals around IMI's valuation and risk reward profile can feel confusing, so move quickly, scrutinise the data yourself, and weigh the 3 key rewards and 1 important warning sign

Looking for more ideas beyond IMI?

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• Target resilient operators first and use the 4 resilient stocks with low risk scores to focus on businesses with stability front and center.
• Hunt for mispriced quality and run through the 7 high quality undervalued stocks to spot companies where fundamentals and share prices are out of sync.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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