Interactive Investor

Insider: chiefs buy big as shares tipped to hit record high

This £1 billion company has a long history, is a world leader in its field and has just published strong results. City analysts have reacted positively. There's buying at another FTSE 250 company too.

7th August 2023 08:56

by Graeme Evans from interactive investor

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sewing thread cotton coats 600

Strong demand for Coats Group (LSE:COA) shares last week included two insider purchases worth £155,000 after the FTSE 250-listed textiles business revealed robust half-year results.

The world leading threads company, whose customers include Inditex, Nike and Dr Martens, reported lower profits but signalled its confidence in the outlook by hiking the dividend 15% and sticking to a key 17% margin target by 2024.

Shares finished the week about 7% higher at 74p, even though Coats said this year’s performance is likely to be towards the lower end of City expectations due to a more gradual recovery from a period of widespread industry destocking.

Buyers of the shares included the Coats chair David Gosnell after he spent £108,000 on Thursday at a price of 71.96p. He was followed on Friday by non-executive director Stephen Murray with a purchase worth £47,500 at a higher price of 73p.

Gosnell, a former Diageo executive who has been on the board since 2015 and its chair since May 2021, oversaw last summer’s strategic acquisitions of Rhenoflex and Texon as Coats built a 20% share of the fragmented global footwear market.

The addition of Rhenoflex, which was part funded through an oversubscribed £92 million share placing at 63.5p, gives Coats a much bigger presence in athleisure and sports footwear.

Coats said last Tuesday that full-year synergies from the two deals will now be $15 million (£11.7 million) in 2024, up from $11 million previously forecast.

It also reported a year-on-year improvement in operating margin to 15% as $37 million (£29 million) of price and productivity gains offset $8 million (£6.3 million) inflation.

Peel Hunt called this an impressive performance given the scale of the volume decline during the period.

The broker added. “We take confidence from the market share gains and margin performance against a background of destocking. Coats is well positioned to benefit once demand reflects the robust end markets.”

It has a price target of 103p, which is double the 50.9p seen last September. Counterparts at Jefferies also see a big upside for shares to 97p, having praised the company’s delivery of self-help initiatives under the leadership of Rajiv Sharma.

The Singaporean, who joined Coats in 2010 and has been chief executive since 2017, told investors last week that significant progress has been made towards “a stronger, fitter and more focused group”.

He backed up his confidence by declaring a dividend of 0.81 cents (0.64p) a share for payment on 15 November, having delivered $52 million (£40.7 million) of cash flow in the first half.

The company, which dates back more than 250 years, is the global market leader in the supply of premium sewing thread to the apparel industry. It is estimated to be over twice the size of the nearest competitor in a market worth around $3.4 billion (£2.6 billion).

Coats also produces highly engineered performance threads, yarns and lightweight composites used in a range of industries including thermal and protective wear.

Another mid-cap business is popular too

Elsewhere in the FTSE 250, the chair of Howden Joinery Group (LSE:HWDN) has spent £148,000 backing the kitchen supplier’s shares to build on their strong July performance.

The investment by Peter Ventress was made on Thursday at 729.6p, a level that compares with the 613p a month ago prior to the publication of reassuring half-year results.

While the figures were materially lower than the record performance seen during 2022’s home improvement boom, Howden said it had grown market share and was encouraged by prospects for the autumn peak trading period.

It said: “Our builder customers remain busy, with activity levels normalising from the exceptional levels of a year ago.”

The company also continues to invest in strategic initiatives and remains on track to open 33 new depots in the UK and 10 internationally this year. It traded from 808 UK depots at the end of 2022, when it achieved annual revenues of £2.3 billion and pre-tax profits of £405.8 million.

UBS reiterated its “buy” recommendation and increased its price target by 4p to 848p following the results. It said its new estimate implied a forward price/earnings multiple of 17.3 times, which is towards the upper end of the company’s five-year average.

The bank added: “Whilst some caution is inevitable given market conditions, Howden has consistently demonstrated good management, strategy and execution - especially during tough market conditions.”

Peel Hunt also moved 25p higher to 795p, but with market conditions currently unhelpful it views the company as more of a share for the longer term. Shares closed the week at 739.8p.

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