Broker tips: St Modwen Properties, Bodycote

In a pre-close statement for the period 1 December 2015 to 31 May 2016, St Modwen said it continued to add new opportunities to its commercial development pipeline, which stood at 1.7m sq ft and comprised a variety of uses in those regions where there was good evidence of occupier take up.

Chief executive Bill Oliver said the regional portfolio, commercial development pipeline and housebuilding activities continue to produce opportunities for growth in group net asset value “which we expect to demonstrate at both the half year and the full year 2016, leading to long-term value creation for our shareholders”.

He said the housebuilding area of the business remains profitable, reflecting strong demand in the UK.

The procurement of the market at New Covent Garden Market is now underway, St Modwen said, with vacant possession of the 10 acre Nine Elms Square site anticipated for spring 2017.

The company reaffirmed that it intended to either sell, joint venture or develop the site during 2016.

“St Modwen's trading update highlights that it is making strong underlying progress across all areas of the business,” Numis said in a note.

“Whilst the impact from the changes to stamp duty and any change to the valuation of New Covent Garden Market site will not be known until the half year stage, we take comfort from the statement that management expect ‘NAV to grow at both the half and full year 2016’.”

RBC Capital raised its target price for Bodycote to 645p from 625p on Tuesday, saying the shares are approaching “fair value”.

Bodycote last week reported in a trading update that group revenue fell 4.9% between 1 January and 30 April from the same period last year to £192.4m, or 9.1% at constant exchange rates.

After taking into account the group's exit from Brazil and the restructuring actions announced in 2015, like-for-like revenues were down 2.7%, or 7% at constant exchange rates.

The metal treating specialist said the restructuring programme announced at the time of the 2015 interim results is now essentially complete with the associated costs and benefits accruing in accordance with the guidance given at the full year results in February.

The group added that given the performance in the first four months of 2016, the board's expectation for results in 2016, at current exchange rates, is unchanged from the time of the 2015 annual results announcement in February.

RBC said upticks in aerospace and the US provide reasons for optimism, along with easing comparators.

The broker added that while oil and gas headwinds look likely to remain, it represents a small portion of the business.

However, general industrial weakness may prove more persistent and meaningful, RBC said.

“Positively, the business appears to be proving its margin resilience and were the economic outlook to improve, we would expect Bodycote to be one of the major beneficiaries. For now, we see the shares approaching fair value.”]

RBC left its rating on the stock at 'sector perform'.