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Coats customers can’t do without its products – and its stock is a respectable value

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This column has yet to see any positive returns from Coats following our first look back in August 2017, but the trading statement earlier this month provides enough positive signals to suggest that our tolerance can pay off.

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The company is a leading supplier of industrial sewing threads, zippers and clasps, and products that go into everything from trousers to jackets and dresses to shoes, but also tea bags and seat belts. Coats provides items that its customers cannot operate without. As a result, the company achieved double-digit operating margins, and a lofty percentage of teen return on capital employed and cash even in the pandemic-hit 2020s.

The pleasing news is that sales for the first half of this year are expected to exceed those in the alike period in 2019 by about 4%. Operating gain is expected to be slightly lower than it was two years ago, due to the continuing effects of the lockdowns in India and increasing cost pressures.

The indispensable nature of Coats products and their powerful market share make them competent to increase prices to at fewest partially offset any gain margin. This, in turn, helps the cash flow to eat up more of its already modest debt.

Granted, Coats’ balance sheet isn’t entirely pure, due to its pension commitments, but these powerful operating margins unkind interest coverage is pleasing, so Rajiv Sharma, CEO, and his team can persevere to invest in the underlying proposal without having to look over their shoulder.

The continued economic recovery should only aid margins and earnings persevere to rise – although any investor who fears a double-dip could feel there will be opportunities to take in Coats shares at lower levels.

While the payout isn’t vast, a barely 14x multiplier for the highest EPS of $0.07 reached in 2018 and 2019 seems like a decent value for the business. Investors can now wait for more details from next week’s periods.

Questor says: Hold

Tape: COA

Share price at closing: 69.9 pence


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