The last time I wrote about international engineering group IMI (LSE:IMI) was back in October 2020, when it was still in the FTSE 250. The shares were rebounding from the pandemic and I said they had bags of recovery potential. I was right.

The share price has soared

The IMI share price is up 115% over the last five years and has surged 50% in the last 12 months alone. Dividends are on top.

IMI designs, builds and services specialist fluid and motion control products. As an industrial business, it’s sensitive to economic cycles, but lately that’s been in its favour. IMI is now on track for a fourth consecutive year of mid-single-digit organic revenue growth. Strong cash generation gives it, in CEO Roy Twite’s words, “the flexibility to invest in organic growth, pursue bolt-on acquisitions, and return capital to shareholders”.

The trailing yield is a modest 1.1%. However, the board as an impressive track record of increasing dividends every year since 2004, with the exception of pandemic-stricken 2020, when shareholder payouts were slashed 45%. Sneakily, they were rebased from there, but have climbed steadily since.

The valuation isn’t cheap, with a P/E of 23.5, but it’s not outrageous either. My hesitation is more about timing. If the global economy stumbles, industrials could wobble. Also, broker forecasts put the one-year consensus target at 2,876p, that’s fractionally below today’s price. Targets are only estimates, but they reinforce my suspicion that I may have missed my moment here. Blind spots can be costly. I’ll pay more attention next time.

Antofagasta is back on my radar

It’s also been far too long since I covered Chilean copper miner Antofagasta (LSE: ANTO). Thankfully, others haven’t ignored it. On 8 February, my colleague Zaven Boyrazian said it “is seemingly perfectly positioned to capitalise on the global structural supply deficit for copper”.

Investors clearly agree. The shares are up 110% over the last year, making it the fifth-best performer on the entire FTSE 100.

That said, there have been recent broker downgrades. Morgan Stanley warned about record valuations. Canaccord Genuity suggested investors may find better value in smaller-cap copper names. With the P/E above 40, that’s hardly surprising. Especially in a cyclical sector like mining.

Yet the momentum continues. The Antofagasta share price climbed past 4,000p after last Tuesday’s full-year results (17 February) showed revenue up 30% to $8.6bn and pre-tax profit jumping 53% to $3.16bn, driven by stronger copper and gold prices.

Again, I worry I’m arriving late. Copper demand looks structural, particularly with artificial data centres now peppering the planet. But if AI proves overhyped, or the global economy slows, copper prices could quickly cool. Consensus forecasts produce a one year target of 3,510p. Which is actually 12% below’s today’s figure.

I prefer to buy stocks before they fly, not chase them afterwards. This requires vigilance though, and a willingness to look beyond the same familiar names. There are some great value FTSE 100 stocks to buy today. Time to take the blinkers off.

The post Have I just missed 2 of the best stocks to buy on the entire FTSE 100? appeared first on The Motley Fool UK.

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• With 162 years of engineering heritage, IMI helps its customers solve difficult engineering challenges and directly impact everyday life.
• IMI has recently restructured its business, forming five market sector teams with a £23bn total address market.
• It continues to deliver industry-enviable returns on equity (ROE) and free cash flow conversion, yet it remains undervalued.
• The First Half of 2024 results showed strong performance, with revenue rising 5% organically and operating profit surging 19%. 
• The board announced a 10% increase in its dividend and a £100 million share buyback, reconfirming its full-year adjusted earnings per share guidance (£1.2 to £1.26).

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However, today’s (26 July) news of a 10% increase in the interim shareholder dividend is welcome. It comes with the backing of an encouraging first-half results report, which extends a multi-year period of steady business progress.

Consistent trading and steady growth

But the chart below shows how volatile the stock can be. It would be easy to lose money with this one if general economic conditions deteriorate.

Nevertheless, despite the difficulties for world economies over recent years, IMI’s business performance has been consistent and tilting towards growth. The multi-year record for normalised earnings shows advances each year since at least 2018.

The pandemic doesn’t even register in the earnings record. However, like many businesses, IMI took the step of preserving cash and reducing dividend payments in 2020.

The directors rebased the payment lower by 50% back then, saying at the time the move would enable IMI to “effectively deliver on its long-term growth ambitions”.

I reckon restructuring and growth initiatives have progressed well since then. The firm has been rebuilding dividend payments, and that trend looks set to continue.

City analysts have pencilled in high-single-digit percentage increases for the total annual dividend both this year and next. That means 2025’s total payment will likely be in the ballpark of 33p, up from 22.5p in 2020.

However, with the share price near 1,837p, IMI forward-looking yield’s modest at just below 1.8%.

But the great thing about IMI is the ongoing, well-balanced, multi-year growth in revenue, earnings and cash flow. The business is doing well and expanding. Its performance through the pandemic demonstrates the strong niche the company commands in its markets.

In today’s report, chief executive Roy Twite pointed to a 5% year-on-year increase in organic sales during the first half. That drove a 6% rise in adjusted organic operating profit and the overall performance of the business was “in line with expectations”.

IMI achieved organic growth and profit margin improvements despite “mixed” end markets, Twite added.

A positive outlook

The directors appear confident in the outlook because they also announced a £100m share buyback programme.

When a company buys back and cancels some of its own shares, the earnings and dividends are spread over fewer remaining shares. So that tends to push up the per-share figures, theoretically boosting returns for shareholders.

However, share buybacks only really make sense if the company’s buying good value. With a forward-looking price-to-earnings rating of just under 14 for 2025, IMI looks like it’s priced around the average of all firms in the Footsie.

So the stock isn’t obviously cheap. But to me, the long record of steady trading and progress makes the company look like decent value with an undemanding price tag.

I think it’s one of the best stocks to consider buying in the Footsie.

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IMI shares on the up

IMI is an international engineering business. It primarily operates in fluid controls and retail dispense areas. Fluid controls cover indoor climate products and services, including valves. Retail dispense covers merchandising systems and beverage dispensers.

IMI shares have been on a great run recently. As I write, they’re trading for 1,520p. At this time last year, they were trading for 1,201p, which is a 26% increase over a 12-month period.

The investment case

IMI is well established in its marketplace. However, the reason why I’m excited about it as a growth stock is the role it could play in the race to net zero. It could help reduce emissions in the oil and gas industries, one of the biggest markets that will need help to reduce emissions. IMI can support decarbonisation by creating intelligent heating and cooling systems and supporting the hydrogen economy. This could help boost IMI in terms of share price, performance, and investor returns.

At present, IMI shares look decent value for money on a price-to-earnings ratio of 14. I believe there’s scope for the shares to continue their great run of late.

Next, IMI shares would boost my passive income with a dividend yield of 1.8%. This is not the highest but I think this could also increase as the business grows too. However, dividends are never guaranteed.

Finally, IMI’s recent performance has been solid, in my opinion. For the year ended 2022, revenue increased by 10% to £2.05bn compared to 2021. This trading momentum continued in the first half of 2023, when revenue increased by 12% compared to the same period last year and operating profit soared by 21%. However, I am conscious that past performance is not a guarantee of the future.

Despite my bullish outlook on IMI shares, there are risks that could impact this growth stock. Firstly, Rishi Sunak’s recent announcement to slow down the net zero targets could see demand for IMI’s green products and services dented. At worst, this could dampen performance and returns, slowing IMI’s growth aspirations down.

From a returns perspective, IMI has paid out dividends for the past five years but they were inconsistent. This is slightly off-putting and perhaps one of the reasons the shares have gone under the radar in recent times. I’d like to see some consistency in its shareholder return policy, which could then continue to boost the share price and its position at the top table of the FTSE 100.

A growth stock I’d buy

I don’t have any spare cash to invest right now. However, the next time I do, I’m considering adding some shares to my holdings. I believe investors should also consider snapping some up.

IMI’s recent promotion to the FTSE 100, a good valuation, passive income opportunity, performance track record, and growth prospects make a solid investment case, in my opinion.

The post Up 26% in a year, here’s a growth stock investors should consider snapping up appeared first on The Motley Fool UK.

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Diploma

What it does: Diploma is a collection of businesses that distribute components across a variety of industrial sectors.

By Stephen Wright. Diploma (LSE:DPLM) is one of the newest FTSE 100 stocks, having been added last month. I expect its success to continue.

At a price-to-earnings (P/E) ratio of just under 33, it’s not cheap on paper. But investing in growth stocks isn’t about what they are today so much as what they are likely to be in the future.

Diploma has a £4bn market cap and generates £128m in free cash per year. Its free cash flow has been growing at 12.5% per year over the last decade.

If this continues, then the business stands to make £416m in free cash 10 years from now. That’s a 10% annual return on an investment made at today’s prices.

Maintaining that kind of growth becomes difficult when a company reaches a certain size. That’s the risk with this company, but with a £4bn market cap, I think that’s some way off for Diploma.

Stephen Wright does not own shares in Diploma.

Hargreaves Lansdown 

What it does: Hargreaves Lansdown is a Bristol-based brokerage, providing the UK’s most used investment platform.

 By Dr James Fox. It may sound strange calling Hargreaves Lansdown (LSE:HL.) — a company with a 5.2% dividend yield — a growth stock, but I think the revolution in self-managed investments has only just begun.

Hargreaves is the UK’s no.1 stocks and fund supermarket, with nearly 2m active users. That’s several times more than its peers, and with its unbeatable customer service and easy-to-use platform, I believe it’s in a strong position to dominate moving forward.

Its recent earnings beat also demonstrated that the business model is robust, with a huge £268m in net interest income. Before rates started rising, this figure was almost non-existent. 

While I appreciate the argument that cheaper platforms can eat into Hargreaves’s market share, I’m of the opinion that the data the Bristol-based company provides is invaluable to serious investors. 

And finally, at 11 times earnings, the stock hasn’t been so cheap in years. 

James Fox does own shares in Hargreaves Lansdown.

IMI Group

What it does: This Birmingham-based specialist engineering company, which joined the FTSE 100 in June, designs and manufactures specialist fluid and motion control systems.

By Harvey Jones. The race to net zero has hit a bump in the road after Prime Minister downgraded UK targets but IMI Group (LSE:IMI) is still playing a key role in the energy transition by helping to reduce emissions in the oil and gas industry, supporting decarbonisation, creating intelligent heating and cooling systems, and supporting the hydrogen economy.

Its shares have been growing strongly, up 31.6% in the last year. They’ve fallen around 10% in the last three months but I think this could be a buying opportunity with the stock valued at just 13.93 times earnings.

2022 revenues showed signs of acceleration, rising 9.8% to £2.05bn. This has continued in the first half of this year, too, with revenues up 12% to £1.08bn and operating profit jumping 21% to £193m.

The dividend yield is relatively low at 1.73% but the board recently hiked the interim payout by 10%, which is promising. It’s also been paying down debt.

While the economy is under the cosh today, I feel this £3.8bn company could outpace the index when the recovery finally arrives.

IMI expects 2023 full-year adjusted earnings per share of between 112p and 117p, which would mark a step up from last year’s 105.5p. I’m keen to take advantage of recent share price volatility to buy its shares in October.

Harvey Jones does not own shares in IMI Group.

Informa

What it does: Informa is a specialist international events, digital services, and academic knowledge company serving business and industry.

By Kevin Godbold. Informa (LSE: INF) is sensitive to economic cycles. That’s clear from the FTSE 100 firm’s multi-year financial record: revenue, cash flow, earnings and dividends have been volatile. And that situation adds some risk for shareholders.

However, the company has been trading well and in the ballpark of 759p, the share price trended higher over the past year. Meanwhile, City analysts expect robust double-digit percentage increases in earnings and dividends for 2023 and 2024.

In July with the half-year report, the outlook statement was positive. And the progress of the business is set against an improving macroeconomic backdrop – at least, that’s how I see it.

Chief executive Stephen A Carter said the focus is on building a “better, broader and more scalable business”. And the directors see visibility for operational momentum into 2024 and 2025.

I think the business is worth researching now as a potential hold for growth.

Kevin Godbold does not own shares in Informa.

Sage Group

What it does: Sage provides software services to other firms, including accounting and HR platforms.

By Jon Smith. Up 47% over the past year, Sage Group (LSE:SGE) has already cemented the position as one of the best British growth stocks of 2023. However, I don’t think the party is over yet. This is because the bulk of income is in the form of reoccurring revenue, usually in the form of software subscriptions.

In the Q3 update, reoccurring revenue was up 12% year-on-year. If I assume existing business can be maintained, then next year we should see further growth as new customers get added. This should help to filter down to higher profits. Given the correlation to the share price, this should also help to lift the stock even further than where it is now.

As a risk, I do feel the business needs to look at expanding investment into artificial intelligence, otherwise it could get left behind.

Jon Smith does not own shares in Sage Group

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IMI (LSE:IMI) joins the FTSE 100 on 19 June. Its share price has increased by 39% over the past five years, compared to a fall of 9% in the FTSE 250, from where it’s been promoted. On this basis, I think it meets the definition of a growth stock.

A brief overview

IMI is a specialist engineering company. It designs and manufactures fluid and motion control systems.

Revenue has grown steadily since 2018 (by 7.5%). But earnings have improved by a more impressive 33%.

However, the problem with engineering companies is that they can be — dare I say it — a little dull and uninteresting. Investors are more attracted to tech stocks.

And I understand why. It’s easier to relate to a battery-powered car than something that controls the flow of fluids. This generally means engineers’ share prices underperform those in more ‘exciting’ sectors.

Share prices and earnings

This year, IMI is expected to generate earnings per share of 112p-117p.

This implies a price-to-earnings (P/E) ratio of around 14. This ratio is often used to assess which stocks offer the best value for money and, in theory, are likely to increase the most.

How does IMI measure up to other FTSE 100 engineering companies?

Of the five, its shares appears to be the cheapest. This might reflect that, until today, it’s been outside the Footsie where companies tend to attract higher valuations. It’ll be interesting to see whether it can close the gap with its peers over the coming months.

At the moment, I think it’s the engineering stock with the most growth potential.

Of course, a P/E ratio shouldn’t be the only factor that’s taken into account when choosing a stock. But by comparing it to others in the same industry, it’s possible to identify potential opportunities for capital growth.

Shareholder returns

I also like stocks that pay generous dividends. Here, IMI doesn’t fare too well.

Like the other four, it currently yields well below the index average. However, its dividend history has been erratic, so it’s hard to forecast accurately what the return to shareholders might be in 2023.

What do I think?

Although I’ve concerns about the lack of growth in its revenue, this is tempered by the rapid improvement in its bottom line.

But it’ll need to start declaring more consistent dividends if it’s to be more widely recognised as a growth stock.

However, I think its promotion to the most prestigious index on the UK stock market means it’ll start to get more attention. And this might increase the pool of buyers for its shares.

Unfortunately, I don’t have any spare cash available to invest at the moment. I’m therefore not in a position to buy IMI shares. Otherwise I’d be happy — possibly excited — to include this engineering growth stock in my portfolio.

The post On the day IMI joins the FTSE 100, is it the best engineering growth stock in the index? appeared first on The Motley Fool UK.

The FTSE 250 index is home to some decent stocks. And if I had the funds to invest, I’d consider researching and buying these two in February for the long term.

The first is specialist engineering and manufacturing company IMI (LSE: IMI). The business makes products that control the precise movement of fluids, such as valves and actuators.  And the November 2022 interim management statement was upbeat. The directors reported strong momentum and raised their guidance for earnings.

Consistent earnings record

City analysts expect single-digit percentage increases for both earnings and the shareholder dividend in 2023. And those rises will come after a multi-year run of steady rises for earnings.

However, the dividend reduced in 2020 when the pandemic struck and rebased lower after that. But it’s been rising every year since. And it looks set to continue because the business seems to be executing its operations well.

In December, IMI announced the acquisition of Heatmiser, a company the directors described as a “leading” UK smart thermostatic control manufacturer. The move aims to target “significant growth opportunities in the UK and in Europe”.

And although there’s no guarantee the firm can realise the growth it’s targeting, I’m optimistic IMI will perform well in the years ahead.

Meanwhile, with the share price in the ballpark of 1,550p, the forward-looking earnings multiple is just over 14. And I see that valuation as fair for a business that stands up well against quality indicators.

However, the directors’ move to trim and rebase the dividend lower in 2020 is not ideal. And it has led to a lower dividend yield now, at just under 1.9% for 2023. Nevertheless, debt seems to be under control. And the business is trading and growing well. 

So I’d be prepared to give the firm the benefit of the doubt and dig in with deeper research. My aim would be to hold the stock for the long term as the underlying growth in the business rolls out.

Good for dividends

But I’m also keen on IG Group (LSE: IGG), the financial technology company and trading platform provider. It was once viewed by investors as a fast-growing operation. But these days it’s more of a steady cash generator. And that’s good for servicing the stream of shareholder dividends.

January’s half-year results report recorded what the firm described as a “strong” financial performance. Revenue rose by around 10% year on year, but rising costs pushed profits down a little.

Nevertheless, City analysts expect a modest single-digit rise in earnings for the full trading year to May. And they predict a similar increase the following year.

Meanwhile, the dividend looks set to go up a little each time along with those earnings. And that expectation will add to a multi-year record of consistent payments. In fact, IG was one of those companies that kept up full dividend payments right through the pandemic.

It’s always possible for the steady performance of the business to decline. And I could even lose money on the stock. But with the share price around 810p, the forward-looking dividend yield for the current trading year is around 5.7%. And that tempts me.

The post 2 FTSE 250 shares I’d buy in February appeared first on The Motley Fool UK.

Rupert Hargreaves: Morgan Sindall

As the UK economy recovers from the pandemic, the construction sector seems to be taking off. As such, I’d buy Morgan Sindall (LSE: MGNS).

As one of the country’s largest construction groups, the firm looks set to benefit from rising activity in the sector.  Indeed, according to a recent trading update, the firm expects to report profit-before tax in the first half of its financial year 46% above 2019 levels. Its backlog has also continued to grow. It is up 5% compared to the year-ago period.

These figures are encouraging, but the construction industry can be volatile. So, Morgan’s fortunes for the year could still change.

Nonetheless, with revenues expanding, I’d buy the stock today.

Rupert Hargreaves does not own shares in Morgan Sindall.

Edward Sheldon: Unilever

My top British stock for August is consumer goods giant Unilever (LSE: ULVR).

Unilever’s share price took a hit in July after the company published its half-year report. Investors didn’t like the fact that earnings were impacted by cost inflation.

I think this share price pullback has provided a nice entry point. Overall, the results showed that Unilever is heading in the right direction. Sales growth came in at 5.4%, while e-commerce sales were up 50%.

With the stock now trading on a forward-looking P/E ratio of less than 20 and offering a prospective yield of around 3.5%, I think it’s a good time to be buying.

Edward Sheldon owns shares in Unilever.

Kevin Godbold: IMI

IMI (LSE: IMI) makes “highly engineered” products such as actuators and valves.

The business scores well against quality indicators, such as return against equity and operating margin. There’s a robust record of operating cash flow and earnings barely faltered through the pandemic. Looking ahead, City analysts have pencilled in a double-digit percentage increase in earnings for 2022.

With the stock near 1725p, the forward-looking earnings multiple is around 18. That’s not cheap and the valuation adds risk for shareholders. But IMI has earned its rich rating. And I’d want it in my portfolio for August and beyond.

Kevin Godbold does not own shares in IMI.

Royston Wild: The Vitec Group 

The Vitec Group’s (LSE: VTC) share price has risen strongly over the past 12 months. And I think that the UK engineering share could gain more ground when first half results are posted on Thursday, 12 August.  

Demand for Vitec’s cameras and broadcast equipment is soaring right now. The firm saw product orders rocket 50% to record levels in the five months to May, it said in its latest statement. And this prompted the business to upgrade its forecasts for the full year.

It’s true that electronic equipment shortages could hamper Vitec’s sales recovery. However, I believe this risk is baked into the share price right now. Today the small cap trades on a forward price-to-earnings growth (PEG) ratio below 0.1. 

Royston Wild does not own shares in The Vitec Group.

Paul Summers: ASOS

Following the huge (overdone) fall of its share price in July, my top stock for August is fast-fashion firm ASOS (LSE: ASC). 

Sure, the company faces some near-term issues relating to its supply chain and slowing sales. There’s also the threat of an online sales tax to consider. However, the stock hasn’t been this cheap since last September. Margins are slowly improving and newly acquired brands will help boost growth in time. 

I’m confident this AIM-listed star will shine again once travel restrictions are lifted and we need fresh wardrobes for holidays. 

Paul Summers has no position in ASOS

Zaven Boyrazian: BP

With the world shifting to renewable energy solutions, BP (LSE:BP) is transforming itself into one of the largest green energy providers over the next decade. Its existing portfolio heavily relies on oil. However, due to increased environmental pressure, that may soon no longer be the case.

It’s already investing in wind, solar, bio and hydrogen energy solutions. And BP estimates it will be generating 50GW by 2030. That’s roughly enough to power 15 million homes.

The transition undoubtedly has risks that could cause short-term disruptions to profits. But over the long term, I believe BP stock and its 5.4% dividend yield will continue to rise in August and beyond.

Zaven Boyrazian does not own shares in BP.

Nadia Yaqub: Aviva

A lot has been happening at Aviva (LSE: AV). The new CEO, Amanda Blanc joined the firm last year. It has also been disposing of assets to focus on its core businesses. And the insurance company announced that it’s going to be making a substantial capital return to stockholders.

I like that the Board is shareholder friendly. Further details on this capital distribution will be released later on in the year. In my opinion, things are changing for the better. The shares pay a dividend yield of 7% and are trading on a cheap price-to-earnings (P/E) ratio of 7x.  

Nadia Yaqub does not own shares in Aviva

Roland Head: B&M European Value Retail

Discount retailer B&M European Value Retail (LSE: BME) has performed well over the last 18 months. Its stores qualified as essential retail and remained open, enjoying bumper trading.

Since its IPO in 2014, B&M has consistently been more profitable than the big supermarkets. I expect this to continue, even as the boost from Covid-19 fades away.

The main risk I can see is that B&M’s success will attract increased competition. So far, I don’t see much sign of this.

B&M’s share price has pulled back recently, as the market prices in slower growth. I think that’s left this business looking very affordable.

Roland Head has no position in B&M European Value Retail.

Tom Rodgers: Grafton Group

I see Grafton Group (LSE: GFTU) as one of the best FTSE 250 stocks to buy in August. The building materials and DIY retailer has profited from the home refurb boom and early shareholders have been rewarded with a 70%+ share price growth in 12 months.

I see much more upside on the cards, however, because the well-run business raised its profit forecast on 8 July after a strong first half of the year. Its buyout of Finland’s workwear distributor IKH also adds another income stream for 2021. Now seems to be a good time to buy to cash in on these profits. 

Tom Rodgers does not own shares in Grafton Group

Christopher Ruane:  Lloyds

High street bank Lloyds (LSE: LLOY) has recently slowed down after a strong share price performance this year. It’s up a third in 2021 and 60% over the past 12 months.

I see a buying opportunity. A possible price driver is the likelihood of a growing dividend. The bank has committed itself to a progressive dividend policy. It is now sitting on excess capital which could help fund it.

Any weakening in the housing market is a risk. As the UK’s leading mortgage provider, Lloyds is heavily exposed to housing.

Christopher Ruane owns shares in Lloyds.

G A Chester: Centamin 

The share price of gold miner Centamin (LSE: CEY) has more than halved since this time last year. It’s been the victim of two common risks that can dent such a stock. Namely, a weakening of the price of gold and an operational setback. 

However, I can see two reasons for optimism right now. First, continuing massive money printing by governments should be supportive of the gold price. Second, Centamin appears to have stabilised operations. 

It reiterated its production and costs guidance for 2021 in a report on 22 July. I reckon further positive noises in its half-year results on 5 August could see returning investor interest in the stock. 

G A Chester has no position in Centamin.

Manika Premsingh: BP

The FTSE 100 oil biggie BP (LSE: BP) will release its second quarter results at the start of August. They could come in strong. We need to look no farther than crude oil prices to know this, which are at pre-pandemic levels. Companies like BP are direct beneficiaries of this trend, as was already visible in the quarter before. The numbers could look better purely because of base effect as well. The same time last year was one of high restrictions, so there was little travel demand and oil prices were relatively low.

I reckon that its share price can rise as results come in, particularly if there are positive developments on the dividend front.

Manika Premsingh owns shares of BP

The post Top British stocks for August appeared first on The Motley Fool UK.

A FTSE 100 firework

An improving advertising market suggests to me that ITV (LSE: ITV) could be one of the best buys today. This FTSE 100 stock is due to release first-quarter financials on Wednesday, May 5, a release I think could provide the broadcaster’s share price with a dose of rocket fuel. The ITV share price is up around 70% over the past 12 months but it has stagnated more recently. A fresh reminder of solid industry trends could prompt a renewed rush of investor interest.

The UK blue-chip share declared in early March that “we are seeing more positive trends in the advertising market in March and April,” and added that “the majority of our programmes are now back in production.” A robust update from industry peer STV Group last week has underpinned my faith in another solid update from ITV this week too. The Scottish broadcaster said that the recovery in the advertising market has come in “ahead of expectations.” Trading updates from other advertising-related businesses like FTSE 100-quoted WPP have also indicated improvements in broader marketing spending.

Again, ITV’s share price has risen terrifically during the past year. Yet the company still trades on a reasonable price-to-earnings (P/E) ratio of 13 times for 2021. This leaves plenty of space for a fresh re-rating of the FTSE 100 firm’s stock. There’s a lot I like about ITV, and as a long-term UK share investor I particularly like the brilliant progress made by its expanding ITV Studios arm.

I’m mindful, however, of the rising threat of streaming giants like Netflix, Disney and Amazon and what this could mean for ITV’s profits in the years ahead. It’s no longer the dominant name in commercial broadcasting it once was so that’s a major risk.

Another best share to buy?

IMI (LSE: IMI), which is a FTSE 250 engineer, updated the market just last week. And it closed at its most expensive price for seven years as a result. IMI announced that it had enjoyed “strong performance in the first quarter across all three divisions” and paid tribute to the “improving trends in our major end markets” too. This robust trading encouraged the firm to hike its full-year earnings expectations too.

As my colleague Jonathan Smith said, such a robust statement so early in the year is unusual. It leads me to believe that further upgrades could be in the offing too, leaving the door open to more share price strength (the IMI share price has more than doubled over the past 12 months). And this could make it one of the best UK momentum shares to buy right now.

Bear in mind, though, that the company currently trades on a forward P/E ratio of 23 times. This sort of elevated rating could cause the share price to retrace if trading momentum begins to lose steam.

The post 2 of the best UK shares (including a FTSE 100 stock) to buy in May appeared first on The Motley Fool UK.

What does IMI do?

IMI operates three main divisions. These are precision, critical, and hydronic engineering. The precision arm is the largest of the three, generating around 50% of revenue last year. In plain English, the business designs and makes valves, pressure monitoring controls, flow control devices, and other heating/cooling systems. This is for a variety of end users, including in the medical, rail, and automation fields.

In comparison to the tech companies that get a lot of the limelight, IMI is what I’d call an old-fashioned engineering company. The products it manufactures gets sold, and the engineering solutions get paid for. One of the elements I like about this structure is that it’s easy for me as an investor to look through documents and understand where the money comes in and where it goes out. 

The IMI share price has done very well over the past year. It doesn’t surprise me that an engineering firm like IMI hasn’t been massively impacted by the pandemic. In fact, 2020 adjusted profit before tax was up 9% versus 2019. This is one reason why I think the share price has offered impressive returns.

Another reason I think the IMI share price is up in the long term is due to the profit margins. This came in at 17.3% in 2020, and the company expects it to be in the region of 18%-20% for this year. That level of margin is healthy, and helps it to ensure that the bottom line is green at the end of the year. Investors likely have seen this, and are confident to buy in for the long term.

The IMI share price spike

In the short term, the IMI share price spiked 11% yesterday following a positive trading update. Revenue was up 7.7% in Q1 2021 on the same period last year. The update spoke of “strong performance in the first quarter across all three divisions and the improving trends in our major end markets”. Profitability for the full-year 2021 was also upgraded.

I think the IMI share price jumped so high on this news because it’s quite early in the year to be calling such strong performance out. Usually upgrades or downgrades to annual performance are done in Q3 or later. Calling it out now is bold, and very positive.

I do see a risk that could prevent the rally from continuing. The business is still going through a restructure, and the costs for 2020 (£39m) exceeded the benefits (£30m). It does expect a net benefit in 2021, but I’m a little concerned about the ongoing high costs involved here.

However, given my bullish long-term reasons mentioned above, I do this the rally could continue and so am considering buying in.

The post The IMI share price rocketed over 10% higher today. Could it explode further? appeared first on The Motley Fool UK.