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Berenberg downgrades Bodycote to 'hold' on valuation grounds

By Michele Maatouk

Date: Thursday 21 Mar 2019

Berenberg downgrades Bodycote to 'hold' on valuation grounds

(Sharecast News) - Berenberg downgraded Bodycote shares to 'hold' from 'buy' on Thursday on valuation grounds.
The bank noted that the shares are up 21% year-to-date - making Bodycote the third-best performer in its industrials coverage - so it's downgrading in search of a "better entry point".

It pointed out that Bodycote has become a stronger business over the past decade by expanding into higher-value segments and faster-growth regions. However, it also said that the heat treatment industry is, by its very nature, cyclical, and while Bodycote has become more insulated from a macroeconomic slowdown, it is not immune.

"2018 results were strong and we expect further progress in the coming years but we think there is only limited upside to numbers and we have some concerns about a potentially slower economic recovery," it said.

Berenberg said that although the maturing of Bodycote's greenfield sites should drive a revenue uplift of around £30m over the next three years, there are tougher comparable periods ahead.

Industrial production data has continued to weaken and the bank's economists believe the downturn in global trade is more likely to deepen in the second quarter before any recovery, which could dampen Bodycote's first-half 2019 results.

The bank lifted its price target on the stock to 940p from 915p.

At 1500 GMT, the shares were down 0.6% to 873p.


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