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Broker tips: Bodycote, Pets At Home

By Iain Gilbert

Date: Thursday 26 May 2022

Broker tips: Bodycote, Pets At Home

(Sharecast News) - 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, which stood by its 'buy' rating on the stock, 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.

Analysts at Deutsche Bank lowered their target price on pet supplies retailer Pets At Home from 430.0p to 385.0p on Thursday but retained their 'buy' rating on the group, citing "structural growth".

Deutsche Bank said Pets At Home's full-year results reflected "a strong end to the year", with sales and pre-tax profits both ahead of expectations.

The German bank stated Pets At Home continued to be "well placed" to take advantage of structural growth in the UK pet care sector, with strong existing market share and planned investment into enhancing the customer proposition through the new DC and Polestar initiatives.

DB also noted that the opportunity to increase the share of wallet from its significant VIP customer base of 7.3m active users remained "attractive", with subscriptions, the price architecture, and digital enhancements "a viable means of achieving this".

"The impact of inflation on consumer spending remains limited so far, with the businesses' more affluent customer base likely to be supported by Covid savings and the private label offer giving a further avenue to retain customer spend (although we see a risk to higher-margin non-discretionary accessories)," added the analysts.



Reporting by Iain Gilbert at Sharecast.com

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