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Bodycote copes with heat

RESULTS: Bodycote had a strong first half and it is well-equipped to cope with the downturn in Europe
July 26, 2012

Much is made of Bodycote’s heavy exposure to Europe and the inevitable currency impact. Yet the heat treatment specialist makes more money from fast growing sectors, like aerospace and energy, than anything else, which should offset turbulence elsewhere – leaving the shares looking too cheaply rated.

IC TIP: Buy at 327p

That said, management admit that 40 per cent of the business – the automotive and general industrial operations in Europe – is softening. French car manufacturers are struggling and Germany was weaker in the second quarter. This has rippled out to Poland and the Czech Republic and China has been a "bit less exciting". Still, these trends have been well-flagged and weaker demand in emerging markets – just 10 per cent of sales – isn't expected to last. Significantly, 60 per cent of the business is in growth mode. Cars and trucks are still selling well in North America and sales to the aerospace and defence industry grew nearly a fifth during the period, with the headline operating profit margin having hit 24 per cent. That trend is unlikely to change given the production ramp-up at Boeing and Airbus. Elsewhere, revenue from oil and gas work was up a third, and North American mining and agricultural equipment made a big contribution, too.

Investec Securities has trimmed forecasts for full-year adjusted pre-tax profit by 4 per cent to £88m, giving adjusted EPS of 34.8p (from £80.9m and 32.1p in 2011).

BODYCOTE (BOY)

ORD PRICE:327pMARKET VALUE:£625.9m
TOUCH:327-328p12-MONTH HIGH:439pLOW: 223p
DIVIDEND YIELD:3.5%PE RATIO:10
NET ASSET VALUE:252p*NET DEBT:3%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201128840.316.03.6
201230143.817.24.0
% change+5+9+8+11

Ex-div: 3 Oct

Payment: 7 Nov

*Includes intangible assets of £132.4m, or 69p a share