Numis downgraded Bodycote to ‘hold’ from ‘buy’ on Friday and slashed the price target to 610p from 800p as it said weaker growth prospects were tempering the margin outlook.
“As global industrial production expectations for 2023 are revised downwards, we have tempered our growth expectations for Automotive and General Industrial but hope that the Civil Aerospace recovery momentum will provide some resilience for the group volumes next year,” Numis said.
The broker is now assuming a 5% impact from higher prices/surcharges in 2023, but has cut its volume growth by 290 basis points to 3.9%. To be prudent, it has also tempered its EBITA drop through assumption from 50% to 40% and assumed some modest under-recovery on cost inflation.
As a result, Numis has reduced its FY2023 EBITA and earnings per share forecasts by 14% to £114.5m and 43.8p, respectively, bringing it down from the top of the range to modestly below consensus.
It said the lower growth trajectory in 2024 and rebased 2023 estimates result in a 17% cut in FY2024 EPS to 47.9p.
The price target has been reduced to reflect the lower growth trajectory and sector de-rating. Numis said it was mindful that the sector has bounced since the end of September and sees more downside risk in the near term for the more cyclical exposed names.
At 0930 GMT, the shares were down 4% at 565p.
