Join our community of smart investors

Coats deliver the goods, despite market difficulties

The industrial thread manufacturers had a tough secind quarter but strong profit growth sent the shares flying
July 29, 2016

A company that reports in dollars but obtains a significant amount of revenue away from the US is probably not best pleased by recent global economic trends, but that didn’t stop investors in Coats Group (COA) sending the share price up 13 per cent following the half-year results announcement.

IC TIP: Hold at 29p

Omitting currency movements revenue was actually up marginally, but management say this was stunted by tough market conditions in the second quarter: as global economic difficulties loomed apparently clothing retailers made less thread orders. At constant currencies the key industrial sector saw revenues rise 3 per cent to $607m (£461m), while the crafts business suffered from a dwindling demand for knitwear through a milder North American winter.

It probably wasn’t the top line that got investors excited though. A 250 basis point margin improvement helped to send adjusted operating profit up 25 per cent to $77.3m. This was driven by the industrials sector where profit grew by 27 per cent, helping to make up for the 67 per cent decline in craft profitability. This however is likely to change as management have announced their intention to close the loss making UK craft business.

This news prompted broker Peel Hunt to upgrade full-year forecasts. Pre-tax profits are now expected at $136m giving an EPS of 5.5ȼ, up from $126m and 4.9ȼ in 2015.

COATS GROUP (COA)

ORD PRICE:29pMARKET VALUE:£408m
TOUCH:28-30p12-MONTH HIGH / LOW:31p21p
DIVIDEND YIELD:nilPE RATIO:5
NET ASSET VALUE:15.3ȼ*NET DEBT:140%

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (p)
201574830.4-3.4nil
201672057.21.9nil
% change-4+2--

Ex-div: na

Payment: na

*Includes intangible assets of $293m, or 21ȼ a share £1=$1.32