HSBC ups Bodycote to 'buy' from 'hold'

5th Oct 2018 10:09

(Sharecast News) - Bodycote rallied on Friday as HSBC upped its stance on the heat treatments supplier to 'buy' from 'hold' and lifted the price target 1,100p from 1,000, saying the growth profile, reduced cyclicality and cash profile are underappreciated.HSBC said the recent share price underperformance provides an opportunity to revisit the stock, with the valuation now undemanding."We believe the share price underperformance in the last three months (-9.8% relative to MSCI European cap goods index) is overdone and provides a good opportunity to revisit the shares."We believe the push to drive its own growth agenda, reduce revenue cyclicality and its high cash generation are strong investment pillars. This is compounded, we believe, by compelling valuation multiples currently and strong valuation upside for its specialist tech businesses."The bank noted that Bodycote's specialist tech revenues have grown strongly at double-digit levels, with around 30% margins. "This should lead to higher group margins - allowing the group to breach 20% operating margins by 2020e - and also enhance the quality of its earnings profile."HSBC said its view is driven by strong demand-side drivers including increasing customer focus to drive efficiency, tighter emission norms and strong end-markets coupled with Bodycote's strong market position, technical expertise and increased capacity.At 1005 BST, the shares were up 1.5% to 905p.