COATS (COA) 79.45P

Shares - - MONEY MATTERS -

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)

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