Powering ahead; reinstate coverage with Buy: Reinstating Coverage: BUY | PO: 3,300 Gbp | Price: 2,808 Gbp

Research evidence excerpt

Powering ahead; reinstate coverage with Buy: Reinstating Coverage: BUY | PO: 3,300 Gbp | Price: 2,808 Gbp

Risks to the investment case

Slower-than-expected energy project spending

Our positive view on IMI is heavily supported by sustained investment in LNG, gas

turbines and nuclear power. A slowdown in energy capex, whether due to weaker power

demand growth, lower gas prices, project delays or financing constraints, could reduce

order intake across Process Automation. Given IMI's expectation of project awards

converting into revenues during 2027-28, any postponement of FIDs or execution delays

could push out growth and weaken operating leverage. This would challenge our above-

consensus growth assumptions and reduce the scope for earnings upgrades.

Industrial production remains weak, delaying IA recovery

Our forecasts assume a gradual recovery in Industrial Automation, supported primarily by

improving US industrial activity. A prolonged period of weak manufacturing output,

subdued capital spending or further destocking could prevent volumes from recovering

from current trough levels. Europe remains particularly vulnerable given limited evidence

of an underlying demand recovery. As Industrial Automation carries meaningful operating

leverage, prolonged weak demand would not only constrain revenue growth but also

limit margin expansion, reducing a key source of upside to our estimates.

Capital allocation shifts from buybacks to M&A

A core element of our investment case is strong cash generation supporting significant

shareholder returns through buybacks. However, management could choose to deploy

excess capital into acquisitions rather than repurchasing shares. While M&A can create

long-term value, acquisitions undertaken at elevated valuation multiples or outside IMI's