Why I highly rate this world-beating UK growth-and-income stock

Bryan Williams explains why he believes Bodycote plc (LON:BOY) is a great candidate for readers’ portfolios.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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If your thoughts turn to world-beating British companies, it’s unlikely that Bodycote (LSE: BOY) will immediately spring to mind. However, around 40,000 international corporations turn to this 100-year-old company for certain niche services

Bodycote’s forte is metal thermal processing or, to put it simply, heating and cooling down metal to give it the requisite characteristics. Actually, most metal-based products undergo some form of heat treatment to ensure that they are fit for purpose. As a subcontractor, the company provides a vital link in the manufacturing process for virtually every market sector.

As you may imagine, many organisations have the capacity to carry out the mature processes involved in heat-treating metal parts. Where Bodycote fits in is offering more advanced procedures, which are the culmination of more than 100 years of experience and research. These advanced techniques are often based on proprietary technology and are employed when more precise heating and cooling are necessary.

As with everything these days, the march of technology is relentless, even in the business of heating metal. Within the specialist technologies division of Bodycote are half a dozen highly differentiated, early-stage technologies with high margins. For these state-of-the-art techniques, Bodycote is either the market leader or one of the top players. A review of the latest annual report reveals that this division is growing at a healthy 12% annually and no doubt contributed to the increase in profitability.

Financials

Back in 2014, the company rewarded investors with a dividend of 14.4p per share. Holders of the stock for year ending 2018 enjoyed an additional 19.0p, which represents a whopping 31.94% increase. Net profit has also seen stellar increases. Again, for the year ended 2014 profits were £79.4 million, however, by 2018, profits grew by almost 30% to reach £103.2 million. A similar picture for revenue was also experienced. For the same period income rose from £609.1 million to reach £728.6 million.

On top of the technological attractions for investing in Bodycote, there are some healthy numbers to consider. Whilst many manufacturers have enormous debts, Bodycote is debt free with around £30 million in the bank. In addition to the cash, the company has a revolving £230 million credit facility to fund expansion or to pay for its stated goal of acquiring bolt-on businesses. Those who wish to put their hard-earned cash to work may also wish to mull over the growth in revenue, profit and dividend over the last five years.

It is not enough to have superior technology when you are a critical part of the supply chain for manufacturers. Suppliers need to be close to their customers so that costs can be competitive and components can be delivered in a timely manner. To this end, Bodycote has established over 180 locations in 23 countries from which to support its clients. Naturally, having such a huge worldwide presence represents a considerable advantage for many global enterprises.

For investors fretting about the impact Brexit will have on British companies, Bodycote may offer some degree of comfort. Even though Bodycote is a British company, 92% of the group’s revenue is obtained outside the UK.

To sum up, Bodycote’s technological lead in metal processing, an excellent financial condition and a truly global footprint make a compelling case for investment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Bryan has no position in any company mentioned in this article. The Motley Fool UK has recommended Bodycote. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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