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Bodycote hints at further special dividends

RESULTS: Currency swings are hitting the top line, but Bodycote's underlying growth is well supported by margin gains and proprietary technology
August 1, 2014

There’s reason to celebrate the first-half performance from Bodycote (BOY). Like other exporters, the thermal processing specialist felt the pressure of negative currency translations, particularly on the top line. Despite a £3.2m forex hit, however, operating profit grew by nearly 8 per cent to £54.2m as new technologies boosted the margin from 16.6 to 18 per cent.

IC TIP: Hold at 694p

Growth was strongest in the oil and gas sector. Management attributes 21 per cent organic growth partly to a temporary fillip from an end to heavy destocking in 2013. But market trends are also moving in the company's favour, they claim, particularly in the subsea arena. Growth from the car market - Bodycote uses heat treatment to strengthen a wide range of automotive parts - was also predictably strong, with organic growth of 7 per cent.

These gains were somewhat offset by a weaker aerospace market, as Boeing and Airbus adjusted their inventories and US defence spending remained subdued. Overall, sales were up about 5 per cent at constant currencies.

Chief executive Stephen Harris expects a similar performance in the second half, albeit with the added risk of fewer orders from customers due to the summer lull. "We still have cash on the books we want to use, though," he adds. "If we can’t find acquisitions then we will use it for a special dividend".

Broker UBS expects full year pre-tax profit of £84m and EPS of 44.3p (from £98.4m and 38.5p in 2013).

Bodycote (BOY)

ORD PRICE:695pMARKET VALUE:£1.3bn
TOUCH:693.5 - 694.5p12-MONTH HIGH:821pLOW: 587p
DIVIDEND YIELD**:2.0%PE RATIO:17
NET ASSET VALUE:277p*NET CASH:£5.5m

Half-year to 30 JunTurnover (£m) Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201331748.518.94.40
201431252.621.14.60
% change-1+8+12+5

Ex-div: 1 Oct

Payment: 7 Nov

*Including intangible assets of £165m, or 86p a share

**Excluding a special dividend of 10p per share