Berenberg hikes target price on Coats following H1 numbers

Berenberg said Coats’ interim results for the six months to 30 June showed "a highly credible organic growth performance" and noted that a slight upgrade to FY24 guidance, stronger-than-expected margin performance and incrementally more positive commentary about the market recovery saw the shares react strongly on the day after having been range-bound for the past few years.

"At a current valuation of 12.5x FY25 P/E, we still see a lot to like in the shares. We move our price target to 120p (from 100p) as the group enters into what we expect could be the start of a sustained market recovery and upgrade cycle," said Berenberg, which stood by its 'buy' recommendation on the stock.

"We roll our previous valuation methodology of 15x FY1 P/E over from our FY24 forecasts to our FY25 forecasts. Beyond mechanics, we also think it is logical to assign more value to Coats on the back of its H1 results: organic growth has continued to build, with all three divisions in growth in Q2, and this is expected to continue; margins of 18% were provably ahead of management’s FY24 target; and volumes and destocking trends have continued to normalise into what now looks like a sustainable market recovery."

Reporting by Iain Gilbert at Sharecast.com