Berenberg slightly raises target price on Coats Group

Berenberg noted that revenues at Coats were up 10% year-on-year on an organic basis and margins were up 120 basis points at 14.8% despite "a challenging macroeconomic backdrop".

The German bank also highlighted that short-term pressures from customer destocking and cost inflation should ease into H223 and stated it continues to see Coats as "a long-term winner" with an attractive earnings growth profile.

"Having taken a further 1% of share in thread, Coats now accounts for 24% of the market – positioning it well to outperform – while the group's acquisitions of Rhenoflex and Texon should improve resilience and open up the addressable footwear market," added Berenberg, which reiterated its 'buy' rating on the stock.

"Coats' shares currently trade on just 11.5x (9.3x FY24 P/E), which we believe is undemanding for a global market leader. Furthermore, the shares offer an attractive 8.1% FY24 FCF yield, with significant upside potential to FCF forecasts if the group is able to trigger its 'switch-off' mechanism on pension funding cashflows (as per the above). We increase our price target to 100.0p (from 90.0p), which would value the shares on a 15x FY23 P/E (12x FY24 P/E)."

Reporting by Iain Gilbert at Sharecast.com