Barclays has started coverage on industrial threads manufacturer Coats Group PLC (LON:COA) with an ‘equal-weight’ stance and a price target of 75p, below the current share price to reflect some caution on the stock.
In a note to clients, Barclays analysts said: “We think Coats has a strong position in the thread market and has the potential to drive earnings from cost-cutting a large opex budget (albeit this is a finite game) and providing global scale to bolt-on acquisitions (albeit M&A is challenging).”
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However, they added: “We initiate at EW as we are cautious on 1) the outlook for top-line growth which limits long-term earnings growth and 2) exceptionals which are still ~10% of EBIT.”
The analysts said their discounted cashflow-driven price target of 75p implies a clean full-year 2018 estimates P/E of 16x and EV/EBIT of 12x.
In mid-morning trading, Coats Group shares were 1% lower at 83.40p.