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Engineering group Bodycote has finalised the long anticipated sale of its testing business to a US buyout firm, for £417m in cash and a loan note relating to 65 acres of land in Canada. The company will return £260m in cash to shareholders after selling this land, which equates to around 80p a share.
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The shares jumped 8 per cent on the news, with the sale price and cash return higher than expected. Analyst Harry Philips at broker Evolution Securities said it was "quite an achievement given that we and others were running £250m in our sum of the parts models at the start of the year", also pointing out that he'd only pencilled in a £150m shareholder return, or 47p a share. The testing business made sales of £176.1m in 2007, 27 per cent of the group's total.
The sale leaves Bodycote free to focus on its thermal processing business, which is the global market leader. Management believe that the market for thermal processing will grow faster than overall industrial production, particularly in North America and Asia where the market is fragmented.
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Bodycote has done well to achieve such a good price for its testing business, which leaves it in pole position to lead global consolidation of the thermal processing industry. At 227.5p, the shares are below our buy advice (244p, 7 December 2007), but analysts calculate that the new group will be trading on a PE ratio of just eight times, and they remain a buy.
Last IC view: Buy, 197p, 29 Jul 2008
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