An improved margin performance should support momentum in engineering play IMI (IMI) with next month’s full year results (7 Mar) offering a near-term catalyst for the stock.

Broker Oriel Securities forecasts 85% of the group’s business will be delivering an earnings before interest and tax (EBIT) margin of 20% by 2014, against an expected outcome of 17.9% for this year. The improvement in profits implied by this increase looks set to be augmented by merger and acquisition activity as the £3.7 billion cap puts to use an estimated £1.2 billion war chest.

Despite the growth potential, the shares trade on an undemanding 14.1 times consensus forecast 2013 earnings per share of 84.8p against an average for the industrial engineering sector as a whole of 18.0.

The Birmingham-based operation is focused on the manufacture and control of units involved in the movements of fluids, with a particular emphasis on indoor climate controls, drink dispensing systems and oil pipe valves. Its revenues are global and only 40% of the group’s sales come from the UK and US.

Shares says: Buy at £11.96.