(Sharecast News) - Analysts at Jefferies started coverage of Coats at buy telling clients that the company's "attractive" suite of sustainable products should see it further bolster its position as market leader.
As well, they judged that the thread manufacturer's above-trend revenue growth and the potential for a recovery in margins meant its approximately 40% discount to the sector was too "severe".
Key to their investment thesis, Coats, which supplies the fashion industry, had an early-mover advantage, having already spent years working on corporate sustainability.
A case in point, its margins in Apparel and Footwear had already recovered to above pre-Covid levels, because customers were willing to pay a premium for Coats's products based on recycled or bio-degradable materials.
There were also positive drivers in place in its other divisions, which all told Jefferies said would see Coats clock in with organic revenue growth of 3.8% between 2022-24, up from the 2.2% pace seen between 2014-19.
In parallel, Coats's Performance Materials division was expected to exit 2022 with margins of approximately 10.5%.
Despite all of the above, the forward price-to-earnings multiple for Coats's shares was at a 50% discount to the sector, the analysts highlighted.
Looking at the enterprise value-to-earnings before interest, taxes and amortisation multiple, that was at 39% discount.
Hence, Jefferies set a 97.0p target price for the shares, which would see them trade on an EV/EBITA multiple of 12.4 times or a 22% discount relative to the sector "which is more in line with pre-Covid levels".
Coats (COA)25 Apr 2024 15:47