Proactive Investors - Run By Investors For Investors

Bodycote and IMI downgraded by Liberum as broker forecasts “sharp correction” in Capital Goods sector

In its sector valuation, the broker said that its ECI had fallen from a peak above 1.2 to below 1.1, an indicator it said was “a key sector sell signal”
Welder
Analysts also cut their target price for IMI to 1,020p from 1,275p

City broker Liberum has downgraded FTSE 250-engineering firms Bodycote PLC (LON:BOY) and IMI PLC (LON:IMI) to ‘hold’ from ‘buy’ and to ‘sell’ from ‘hold’ respectively as its analysts forecast a “sharp correction” in the capital goods sector, leading to destocking and cost inflation.

In a note to clients, Liberum’s analysts said Bodycote’s “unique business model”, in which it holds no inventories, left it better placed than its peers to combat the destocking and cost inflation that was expected to hit the sector.

READ: Bodycote Group confident about full year after strong interims

They added that despite its early cycle indicator (ECI) for the sector indicating a substantial drop in earnings, earnings per share (EPS) forecasts for Bodycote over the next two years were only 4% below consensus on the expectation that margins “should remain resilient” due to continued growth in its specialist technologies division.

However, Liberum was less kind to IMI, saying that an expected destocking in 2019 would compound a hit to margins caused by slower growth in its precision division, adding that margins for the firm were expected to “flatline” from 2018 to 2020.

Analysts also cut their target price for IMI to 1,020p from 1,275p as they felt its other divisions would not be able to offset downgrades in the precision arm of the business.

In its sector valuation, the broker said that its ECI had fallen from a peak above 1.2 to below 1.1, an indicator it said was “a key sector sell signal” as the value of the sector had fallen on six out of the last seven occasions that the ECI had dipped below the 1.1 level.

Liberum added that across the last seven occasions, the average decline in the sector stood at 28%.

In mid-morning trading Thursday, Bodycote shares were down 3.7% at 906p, while IMI shares were down 2.5% at 1,173p.

View full BOY profile View Profile

Bodycote Group Timeline

Related Articles

1531831763_3U2A9699.jpg
October 03 2018
This month (October) Atlas said it had completed the acquisition of Coastal Windows Ltd
broken cell phones
October 02 2018
Mineworx Technologies offers a cost-effective, environmentally friendly alternative in extracting precious metals for the mining and E-waste sectors

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use