Bodycote thinks big on spending

Share price rises on news of £37m earmarked for expansion

By Hugh Sharpe

The City may not understand hot isostatic processing (hip) – Bodycote International’s growth area for metals treatment – but it knows a winner when it sees one.

John Chesworth, chief executive, has just startled the City with capital spending plans this year of £37.6m: big money for a firm with shareholders’ funds of £192m.

The City pushed up the firm’s share price after 1996 results showed profits up 48% at £27.6m on 25% margins. The figures were much in line with the forecasts of broker Henry Cooke two weeks ago (The Engineer 10 April).

Profits would have been £2.25m higher but for the adverse impact of the strong pound on overseas earnings.

The bulk of spending is earmarked for the largest two of the five divisions: heat treatment (£20m) and hip (£12.5m). It includes the construction of a new unit close to the Boeing plant in Washington, US, to house a heat treatment centre and a large capacity hip press.

Boeing has contracted out its heat treatment work to Bodycote – a fast-growing trend in aerospace and automotive manufacturing. Chesworth said 25% of heat treatment work in the UK – business worth £100m annually – is now done that way. Bodycote handles 20% of it.

Bodycote spent upwards of £100m last year on acquisitions and Chesworth plans more, probably in the US. With £20m cash, the chief executive is happy for gearing to rise to 40% if necessary.

Heat treatment is peripheral to Bodycote’s two other quoted UK competitors, TI and Senior, said Chesworth. `I expect they’ll sell to us one of these days,’ he added.

Henry Cooke holds to its earlier forecast of 1997 pre-tax profits of £47.3m and expects shares, at 765p, to rise to £10 this year.