COATS (COA) 79.45P
INDUSTRIAL THREADS AND consumer textile crafts firm Coats is one of those companies unfamiliar to most people yet provides essential things in everyday life.
Its products are used in a wide range of items such as stitching in trainers and threads for making tea bags, to zips on coats and tape around mattresses.
We think now is the ideal time to buy the shares despite them having increased three-fold over the past 18 months. That rally was down to fixing pension problems. With those distractions now out of the way, the investment case is purely focused on the core business, driving up margins and driving down debt.
This is a superb company growing profit each year and delivering a superior return on the money it invests in the business.
‘We expect the retail supply chain to change in the coming years as suppliers combat rising labour costs by placing greater emphasis on automation, localisation, product innovation, and sustainability,’ says investment bank Berenberg.
‘In our view, Coats is one company that is well positioned to benefit and take market share from peers.
‘The shares currently trade on 8.2x 2018 EV/EBITDA, and we think there is potential for upgrades through M&A, market share gains, and productivity improvements.’
Our view is that the shares are too cheap for a company forecast to generate at least 25% return on capital each year, together with 8%+ annual dividend growth. (DC)