Bodycote Plc – Value Analysis (LONDON:BOY) : October 6, 2017

Capitalcube gives Bodycote Plc a score of 59.

Our analysis is based on comparing Bodycote Plc with the following peers – Renew Holdings plc, Redhall Group plc and Costain Group PLC (RNWH-GB, RHL-GB and COST-GB).

Investment Outlook

Bodycote Plc has a fundamental score of 59 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative outperformance over the last year has faded more recently.
  • It’s current Price/Book of 2.78 is about median in its peer group.
  • The market expects BOY-GB‘s earnings to grow at about the same rate as its chosen peers and also does not seem to expect much improvement in its below peer median returns.
  • BOY-GB‘s relatively high profit margins are burdened by relative asset inefficiency.
  • Change in the company’s annual revenues seems to be coming at the expense of earnings.
  • BOY-GB‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s relatively high gross and pre-tax margins suggest a differentiated product portfolio and tight control on operating costs relative to peers.
  • While BOY-GB‘s revenues growth has been below the peer median in the last few years, the market still gives the stock a P/E ratio that is around peer median and seems to see the company as a long-term strategic bet.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • BOY-GB has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

BOY-GB has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 0.16% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 12.14%), and a well-cushioned interest coverage level of 42.96x, BOY-GB can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • All 3 peers for the company have an outstanding debt balance.

BOY-GB has maintained its Quick & Able profile from the prior year-end.

  • BOY-GB‘s interest coverage has increased 9.00 points from last year’s low but is still below its four-year average interest coverage of 105.35.
  • The increase in its interest coverage to 42.96x from 33.96x (in 2015) was also accompanied by an increase in its peer median during this period to 25.18x from 14.50x.
  • Interest coverage fell 1.68 points relative to peers.
  • BOY-GB‘s debt-EV is less than (but within one standard deviation of) its four-year average debt-EV of 1.41%.
  • Compared to 2015, debt-EV has remained relatively stable for both the company (0.16%) and the peer median (12.14%).

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Renew Holdings plc 3.99 0.64 41.36 136.05
Redhall Group plc 34.1 1.29 0.47 -8.9
Costain Group PLC 20.29 1.18 9 66.93
Bodycote plc 0.16 1.06 42.96 2227.27
Peer Median 12.14 1.12 25.18 101.49
Best In Class 0.16 1.29 42.96 2227.27

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Company Profile

Bodycote Plc engages in the provision of thermal processing services. Its thermal processing services comprises of core technologies, which include heat treatments, metal joining, hot isostatic pressing, and surface technology. It operates through the Aerospace, Defense, and Energy; and Automotive and General Industrial segments. The company was founded in 1923 and is headquartered in Macclesfield, the United Kingdom.


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