Bodycote shares rally on N+1 Singer upgrade

Bodycote got a boost on Friday after N+1 Singer upgraded the stock to ‘buy’ from ‘hold’ saying sentiment was likely to warm next year.

The broker cut its estimates to reflect the more challenging trading environment which was confirmed in the group’s third quarter update.

It downgraded its pre-tax profit and earnings per share forecasts by 10% for 2015 and 16% for 2016, saying this assumes a further weakening in the last months of this year and a 2.7% organic sales decline next year due to subdued end markets.

However, Singer expects sentiment to become more positive in the year ahead.

It pointed out the shares are trading on a discount to the sector on consensus forecasts based on low expectations.

In addition, it said comparatives will begin to soften from the second quarter of next year, while management execution remains strong and the sales mix continues to benefit from faster growth by higher margin Specialist Technologies.

“Furthermore, the strong balance sheet would support a cash return or M&A,” said Singer, which cut its price target to 635p from 785p.

At 1050 GMT, Bodycote shares were up 4.5% to 564p.