LONDON (ShareCast) - (Sharecast News) - RBC Capital Markets suggested on Thursday that takeover approaches by private equity firms CVC and Veritas Capital for Bodycote are "not very generous", as it lifted its price target on shares of the provider of heat treatment and specialist metallurgical technologies.
Bodycote surged late on Wednesday after it emerged that CVC and Veritas had made offers at 915p a share and 914p a share, respectively. Both would include the interim dividend of 7.2p a share.

RBC noted that it has previously argued that bids for Dowlais and recently Rotork have undervalued quality industrial assets that have been harshly de-rated in the UK market.

"The premium here is not that generous at 21% to the close the day before the announcement and only 16% above the year-to-date peak pre M&A interest," it said. "The implied EV/EBITA at 14x26E/ 12x27E does not look compelling in our view relative to the 10-year average for Bodycote at 13x and strikes us as another example of a bid taking advantage of a derated UK industrial," RBC said, referring to Rotork.

The bank lifted its price target on Bodycote to 950p from 750p given the potential for competing offers.

"Given two potential bids following a prior discussion in May with another bidder, we see M&A as a solid underpin now," RBC said. "However, as noted above the valuation does not look that generous on a take-out basis.

"We are not sure there is a natural trade buyer, potentially leaving this as a PE contest, but we do see valuation upside from the current bid level and raise our PT to 950p, which would still only be 13x27E EBITA, in line with the 10-year average."

RBC rates Bodycote at 'sector perform'.

At 1410 BST, the shares were up 0.9% at 915p.

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