Insider: FTSE 250 chief on front foot after US deal

Optimism that a major US takeover will be the catalyst for “perpetually range-bound” Coats Group (LSE:COA) shares has been backed up by its chief executive spending £162,000 on a bigger stake.

David Paja’s investment comes amid his efforts to reshape the “quality and growth profile” of the industrial threads business, including through the acquisition of OrthoLite Holdings.

• Invest with ii: Open an investment Account | General Investing with ii | Interactive investor Offers

The deal, which carries an enterprise value of $770 million (£568.1 million) and is expected to complete before the year-end, significantly strengthens the Coats footwear business in the high-growth premium insole segment.

Both companies are key suppliers to the world’s leading footwear brands, including Adidas, Asics, Hoka, New Balance, Nike and Puma.

Coats has funded the “landmark” acquisition through a combination of new debt facilities and a £246 million placing of up to 20% of its capital at a price of 77p a share.

Paja, the former GKN Aerospace chief executive who joined Coats in September 2024, took part in the July fundraising and has since returned to buy more shares at a price of 80.87p.

The disclosure of Wednesday’s purchase of 200,000 shares came during a stronger week for the FTSE 250-listed stock, which closed on Friday at 81.7p.

• Shares for the future: still bullish on this top 10 stock
• Stockwatch: four key reasons this bull market could continue

Coats is still 12% lower for the year, having traded between 50p and 100p over the past five years. Noting a valuation multiple of about nine times 2026’s forecast earnings, City firms Peel Hunt and Berenberg recently disclosed price targets of 125p and 130p respectively.

Berenberg said: “We expect that, in time, the OrthoLite deal will catalyse a perpetually range-bound share price, while meaningfully driving Coats towards (if not beyond) its medium-term goals.”

The company’s targets are double-digit earnings growth, an operating margin of 19-21% and over $750 million of free cash flow generation in the next five years. 

The addition of OrthoLite is expected to improve the quality of group earnings, shifting the company more towards the high-growth, high-margin footwear segment.

The group, which dates back more than 250 years, is the global market leader in the supply of premium sewing thread to the apparel industry.

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

• FTSE 100’s quality compounders plus other stocks to consider
• Retirement case study: how I manage a £2.5m SIPP and ISA portfolio

Peel Hunt said last month that the broadest global footprint in the industry should provide Coats with a competitive advantage as supply chains shift to reflect US tariff differentials. 

The bank added: “Understandably, there have been some nerves on the tariff situation, but thus far the end-market has proved relatively resilient.

“Inevitably there will be some impact on sales in the short term as companies re-assess their supply chains and inventory levels, but we believe Coats is well placed to increase share given its regional exposure and track record of managing change.”

In July’s half-year results, Paja said Coats had outperformed its markets by achieving top-line growth in a period of significant external uncertainty. Group revenues rose 2% on a constant exchange rate basis, while adjusted earnings per share improved 4% to 4.7 US cents.

He noted the group is already within the middle of its margin target range and has delivered a step up in free cash flow, which is expected to further increase in the second half and into 2026.

Paja said: “Coats is a global market leader with a high-quality portfolio, improved structural exposure to higher growth segments, and a best-in-class global footprint that enables responsiveness to customer needs.

“Taken together, we are excited about the group’s growth, margin and cash generation potential over the medium-term.”

Swift paper profit

A rejuvenated Fevertree Drinks (LSE:FEVR) share price has produced a swift £20,000 paper profit for a long-serving director after he increased his stake in the wake of half-year results.

Drinks industry veteran Kevin Havelock, who is the company’s senior independent director and a board member since 2018, spent £313,000 at a price of 846p on Thursday.

The AIM-listed stock closed the session at 872p before rallying as far as 907p on Friday and closing for the week at 904p.

The price compares with the decade low of 611.5p seen in mid-January, prior to the company’s “transformational” US strategic partnership with Molson Coors Beverage Co Class A (NYSE:TAP.A)

The world’s fourth-largest brewer, whose brands include Carling, Staropramen and Miller Lite, took an 8.5% stake as Fevertree’s second-largest shareholder.

Proceeds from the acquisition of newly created shares at 654.2p are in the process of being returned to shareholders, while there have been encouraging signs of continued US momentum in the early stages of the partnership.

• ii view: could Zero be hero at drinks giant Diageo?
• Sign up to our free newsletter for share, fund and trust ideas, and the latest news and analysis

The deal has de-risked Fevertree’s supply chain and driven higher-quality earnings by giving Molson Coors exclusive rights to sell, distribute and produce the brand in the United States.

US revenues rose 6% to £62.4 million in the half-year results, despite potential for disruption late on in the period due to the start of the change to Molson Coors distributors.

UK revenues fell 6% to £48.1 million amid continued challenging conditions in the on-trade category. Adjusted half-year earnings of £18.4 million came in 1% higher and better than the £16.3 million forecast by Jefferies.

The City bank said: “While still early days, trading in the US would appear to be running ahead of expectations and bucking the trend of broader beverage alcohol.”