Sharecast News
26 May, 2022 13:28

Berenberg lowers target price on Bodycote

dl bodycote surface coatings logo cast ftse 250 min
BodycoteSharecast graphic / Josh White

Analysts at Berenberg lowered their target price on metal heat treating company Bodycote from 1,030.0p to 780.0p on Thursday, stating the group's current trading performance was "a mixed bag".

Berenberg said the near-term outlook for the group may be "cloudier than usual" given Bodycote's cyclicality, but it stated the longer-term opportunities for investors were "far clearer".

The German bank said Bodycote's January-April trading update was "encouraging", with demand remaining "robust" across the business and aerospace and general industrial markets being particularly strong.

On the other hand, Berenberg stated April, in particular, highlighted the severe supply chain and inflationary challenges being faced by Bodycote and its customers – something that is causing "significant volatility" in trading week over week and depressing margins until mitigated by pricing actions.

However, Berenberg still expects year-on-year full-year revenue growth despite increased costs putting underlying earnings on a course towards the lower end of consensus with risk to the upside or downside predominantly coming from higher or lower volumes. It also said mid-term opportunities for the stock were "compelling".

"This is a high-quality business that should expand margins to 20%, and benefit from outsourcing and sustainability trends while continuing to deliver sector-leading cash generation that will likely result in M&A and/or attractive cash returns to shareholders," said Berenberg.

"We, therefore, believe an 8.1% 2023 FCF yield remains appealing and retain our 'buy' recommendation."

Reporting by Iain Gilbert at Sharecast.com


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Pilling and Co Stockbrokers Ltd. is not responsible for the content or accuracy of third party news articles and we may not share the views of the author or publisher.

We provide third party news for your convenience and information only and make no representation or endorsement whatsoever and hereby exclude all liability for any loss or damage that may be incurred by you as a result of your access or use. Please note that third party content may be subject to terms and conditions imposed by the third party owner of that content.

The value of investments can fall and you may get back less than you invested.