Bodycote PLC (LON: BOY)

Bodycote PLC (LON: BOY) is an FTSE 250 listed Company, which is the world's leading provider of heat treatment and specialist thermal processing services. Moreover, Bodycote operates across two major business division – ADE (aerospace, defence, & energy) and AGI (automotive & general industrial). Overall, BOY has 165 facilities around the globe across both business segments.

Recent trend of dividend payments

The Company has a progressive dividend policy of paying its shareholders around 2.0 times earnings on a 'normalised' multi-year basis. Moreover, the Company will pay a final dividend of 13.8 pence per share on 03 June 2022 with an ex-dividend date of 22 April 2022. It will take the full-year dividend of 20.0 pence per share. In comparison, it had paid a total dividend of 19.4 pence per share for the prior year.

 (Source: LSE, chart created by Kalkine Group) 

Growth Prospects

• Restructuring Program: The Company had completed 2020 restructuring program with permanent cost savings of £20 million delivered in 2021. BOY had expected an additional cost-saving of £10 million during FY22.
• Strategic Priorities: The Company aims to accelerate its investments in the emerging markets. Furthermore, BOY had shown an increase of around 17% in revenue across Emerging markets during FY21.

Key Risks 

• FOMC Meeting Minutes: The Federal Open Market Committee's meeting minutes indicated that the Federal Reserve is preparing to move aggressively to head off inflation.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% in February 2022, which may cause a further interest rate hike.
• Ukraine Tension: The mounting concern over the Russian invasion of Ukraine can continue to weigh on the equity market.
• Weak Manufacturing PMI: The UK manufacturing PMI reached a 13-months low in March 2022.

Key Fundamental and Shareholders Statistics of Bodycote PLC. 

Aberdeen Standard Investments (Edinburgh) is the most significant shareholder as it holds nearly 19.04 million shares as of 31 March 2022.

FY21 Financial Highlights (for the year ended 31 December 2021, as of 14 March 2022)

(Source: Company Filings)

• Top-Line Business: The Company’s top-line revenue grew by around 7.1% at constant currency, from £598.0 million during FY20 to £615.8 million for FY21.
• Profitability: On the profitability front, the headline operating margin remained 15.4% during FY21. In comparison, it was 12.6% for FY20.
• Balance Sheet: The net debt stood at £52.0 million as of 31 December 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 07 April 2022, BOY’s shares were closed at GBX 614.00, down by around 1.21% from the previous day’s closing price. Stock’s 52-week High and Low were GBX 1,007.00 and GBX 588.50, respectively.

On a daily chart, the stock price is sustained very close to the lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Moreover, the 14-days RSI of ~36.21 reflects an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative) 

Business Outlook

Bodycote had shown accelerated progress during FY21, with margins increasing to 15.4%. The Company’s resilient business performance got driven by strong recovery in General Industrial markets and completion of the restructuring programme. In terms of divisional performance, the Company had strengthened its Civil Aerospace division. In a nutshell, the business outlook remained positive because of the expected revenue growth across all the market sectors.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the accelerated recovery in several business divisions, consistent dividend payments, decent financial performance, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Bodycote PLC at the closing market price of GBX 614.00 (as of 07 April 2022), with lower-double digit upside potential based on 15.81x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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