If the share prices of these two FTSE 250 stalwarts are knocked back in the current bout of stock market volatility, I think they will become compelling opportunities for investment. I’m watching closely and I’m ready to pounce!
Precision engineering
The figures in July’s half-year results report from IMI (LSE: IMI) were flat but “in line with expectations.” The firm designs, manufactures and services “highly engineered” products that control the precise movement of fluids, such as valves and actuators. And the report tells us that the precision engineering business is being affected by weakness in the industrial automation segment, but there’s been strong growth in orders and “robust” margins in the critical engineering division.
Right now, the directors are engaged in a strategic review “looking at all aspects” of the business. And despite anticipating a modest decline in organic revenue in the second half of 2019, they expect overall profits to hold flat for the year compared to 2018, “supported by business improvement initiatives.”
I’m optimistic that IMI will emerge from its review process to implement changes that will lead to more effective execution of operations. In the meantime, with the share price close to 915p, the forward-looking earnings multiple sits just below 12 for 2020 and the anticipated dividend yield is around 4.7%. That strikes me as an undemanding valuation, and the stock would sit well in my portfolio.
Pubs and brewing
Greene King (LSE: GNK) delivered steady-as-she-goes full-year results in June with revenue up around 2% and earnings about 3% higher. The directors held the dividend flat for the year.
The Suffolk-headquartered outfit has around 2,730 pubs, restaurants and hotels in England, Wales and Scotland, and around 81% of the estate is either freehold or long leasehold. 1,687 of the properties are retail pubs, restaurants and hotels, and 1,043 are tenanted, leased and franchised pubs.
You might be familiar with the firm’s brands such as Greene King Local Pubs, Chef & Brewer, Farmhouse Inns and Hungry Horse. The firm is also known for its brewing business, which has brands such as Greene King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best.
The sector has been troubled for years, resulting in many pub closures, as I’m sure you’ve noticed. In fairness, Greene King’s dividend has been flat for the past four years too, suggesting tough trading conditions. But I think the company’s estate is probably made up of survivors on the pub scene.
Meanwhile, there’s change at the top with a new chief executive warming up his seat after starting earlier this year, which could usher in positive change for the enterprise. And the valuation looks attractive to me. With the recent share price close to 593p, the forward-looking earnings multiple is around nine for the trading year to April 2021 and the anticipated dividend yield is about 5.6%.