Like many of us here in the Stockopedia community, quantitative metrics are the foundation of my investment strategy – everything from screening for opportunities and stress-testing my ideas.
But I also run thematic views alongside the numbers. For me, the combination has led me toward several years of successful investment in AI hardware and infrastructure – long may that continue.
Another is a quieter preference for industrials with very little AI disintermediation risk -- businesses like Bodycote (LON:BOY), where heat treatment requires physical furnaces and metallurgical expertise. It’s also a business that leverages customer relationships built over decades. No Claude algorithm is replacing that.
Right now, the proposition looks inviting. It’s not a stock I own yet, but it’s been on my watchlist for some time.
The Pitch
Bodycote shares are now trading where they were before Apollo Global Management made an approach for the company – the parties ended talks over a £1.52 billion takeover proposal on 5 June. Cleansed of the takeover premium, the value proposition is looking more attractive as the margin of safety returns.
Bodycote is the world's largest provider of outsourced heat treatment and thermal processing – several times larger than its nearest peer in what has historically been a fragmented sector -- with long-term relationships across aerospace, defence, and automotive. It's the kind of business that's genuinely difficult to replicate.
Like many British industrial companies in the post-pandemic world, there’s a restructuring programme involved and it’s almost complete. After a tough run, core revenues turned positive in H2 2025, while an £80 million buyback is supporting earnings per share growth.
Most importantly, it’s a quality company at a good price. At 13.6 times forward earnings with 16% EPS growth forecast and a 3.4% yield covered twice by earnings, the valuation is undemanding. Seven analysts cover the stock with a consensus target 20% above today's price.
Source: 2024 Capital Markets Day
The Big Picture
The world is spending more on the things Bodycote makes possible. Defence budgets are rising -- Europe in particular is rearming at a pace not seen since the Cold War. Commercial aerospace has order books stretching a decade, with Boeing and Airbus still working through a post-pandemic production backlog.
Demand for industrial gas turbines is also strengthening, particularly in the US, as power infrastructure investment accelerates…
