Coats Group
Written by
Coats Group |
On track for FY15 progress |
Trading update |
General industrials |
20 November 2015 |
Share price performance
Business description
Next events
Analysts
Coats Group is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recent group trading has been broadly in line with H1, albeit with some variation within the detail. Our estimates are unchanged and will be reviewed again at the year end. P/E multiples remain in single-digits from FY16. We note Coats’ intention to delist from ASX and NZX next year.
Year end |
Revenue (US$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
1,561.4 |
128.2 |
5.2 |
0.0 |
7.3 |
N/A |
12/15e |
1,519.5 |
112.3 |
4.1 |
0.0 |
9.3 |
N/A |
12/16e |
1,571.7 |
133.1 |
5.5 |
0.0 |
6.9 |
N/A |
12/17e |
1,633.5 |
144.1 |
6.3 |
0.0 |
6.0 |
N/A |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. Continuing operations only.
Some variations noted in H2 trading (4M to October)
In the four months to end October, group revenue was c +3% y-o-y in local currency versus c +4% seen in H1, with a firm US dollar having a slightly more adverse y-o-y impact in the period. Operationally, the rate of Apparel & Footwear progress looks to be slightly better, while Crafts saw flat l-f-l revenues in the latest trading period, improving from c -7% in H1. Speciality threads’ l-f-l revenue was also flat over the last four months but followed a strong H115 (+12.8% y-o-y). Weaker activity in the oil & gas and Chinese auto industries is cited as the reason for this (in Coats’ case affecting fire-resistant aramid garment thread and airbag/interior thread demand respectively). By implication, progress in other speciality categories has balanced out these soft spots and auto generally (ex-China) is understood to be performing well. At group level, management still expects to report operating profit progress for the full year. Our existing FY15 estimates (ie revenue -2.7% and EBIT +5.3%) may now be more towards the upper end of the achievable range but we leave them unchanged for now. We will review this and cash flow projections (see below) at the year end.
Brunel progress, other non-trading issues unchanged
Coats has agreed to pay US$8.5m annual cash recovery payments into the Brunel pension scheme (previously nil), starting in FY15. This is subject to review by the UK pension regulator, who has also responded to comments on the Staveley scheme. This dialogue is ongoing. Also, there is no new indication on timing for the expected joint consideration of all three UK schemes. There is no fresh newsflow to report on the US environmental case either (Lower Passaic River). For the record, we have no new expected exceptional charges in FY15 and a discontinued P&L line estimated to be c US$70m for the year (including over US$50m in H115).
Valuation: Still on single-digit multiples
Coats’ share price is little changed over the last month or so. Hence, the valuation analysis in our October initiation note remains valid (accepting that the Brunel payments will lower cash flow, other things being equal). The catalysts for future share price performance continue to be earnings momentum and greater clarity on and/or resolution of the legacy issues referenced above.
Exhibit 1: Financial summary
US$m |
2014 |
2015e |
2016e |
2017e |
||
December year end |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
|
|
|
|
Revenue |
|
|
1,561.4 |
1,519.5 |
1,571.7 |
1,633.5 |
Cost of Sales |
|
|
(993.4) |
(952.1) |
(984.8) |
(1,023.6) |
Gross Profit |
|
|
568.0 |
567.4 |
586.9 |
609.9 |
EBITDA |
|
|
170.0 |
173.8 |
187.1 |
200.1 |
Operating Profit (before GW and except.) |
123.4 |
130.0 |
140.0 |
149.5 |
||
Net Interest |
|
|
(8.7) |
(6.0) |
(8.0) |
(6.5) |
Other finance |
|
|
13.5 |
(11.7) |
1.1 |
1.1 |
Intangible Amortisation - acquired |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
Pension Net Finance Costs |
|
|
(11.3) |
(17.2) |
(17.2) |
(17.2) |
Exceptionals |
|
|
(20.0) |
(12.5) |
(5.0) |
0.0 |
Profit Before Tax (norm) |
|
|
128.2 |
112.3 |
133.1 |
144.1 |
Profit Before Tax (FRS 3) |
|
|
96.9 |
82.6 |
110.9 |
126.9 |
Tax |
|
|
(45.1) |
(41.7) |
(45.3) |
(46.1) |
Discontinued |
|
|
(27.2) |
(69.6) |
0.0 |
0.0 |
Profit After Tax (norm) |
|
|
55.9 |
1.0 |
87.8 |
98.0 |
Profit After Tax (FRS 3) |
|
|
24.6 |
(28.7) |
65.6 |
80.8 |
Minorities |
|
|
(9.6) |
(10.0) |
(10.0) |
(10.0) |
Profit Attributable to Shareholders |
|
|
15.0 |
(38.7) |
55.6 |
70.8 |
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
|
1,407.4 |
1,406.3 |
1,406.3 |
1,406.3 |
|
EPS - normalised (c) |
|
|
3.3 |
(0.4) |
5.5 |
6.3 |
EPS - continuing normalised FD (c) |
|
|
5.2 |
4.1 |
5.5 |
6.3 |
EPS - continuing normalised FD Coats (c) |
|
3.1 |
3.8 |
4.3 |
5.0 |
|
EPS - FRS 3 (c) |
|
|
1.1 |
(2.8) |
4.0 |
5.0 |
Dividend per share (c) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
36.4 |
37.3 |
37.3 |
37.3 |
EBITDA Margin (%) |
|
|
10.9 |
11.4 |
11.9 |
12.2 |
Operating Margin (before GW and except.) (%) |
7.9 |
8.6 |
8.9 |
9.2 |
||
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
Fixed Assets |
|
|
653.9 |
635.1 |
630.0 |
621.5 |
Intangible Assets |
|
|
256.7 |
256.5 |
248.7 |
240.9 |
Tangible Assets |
|
|
298.2 |
283.9 |
286.6 |
285.9 |
Pension Surplus |
|
|
51.0 |
49.2 |
49.2 |
49.2 |
Other |
|
|
48.0 |
45.5 |
45.5 |
45.5 |
Current Assets |
|
|
1,308.4 |
1,213.3 |
1,277.0 |
1,355.7 |
Stocks |
|
|
257.8 |
220.4 |
228.0 |
236.9 |
Debtors |
|
|
311.6 |
252.7 |
260.1 |
268.9 |
Cash |
|
|
739.0 |
740.2 |
788.9 |
849.9 |
Current Liabilities |
|
|
(576.6) |
(414.6) |
(437.6) |
(456.9) |
Creditors |
|
|
(463.1) |
(414.6) |
(437.6) |
(456.9) |
Short term borrowings |
|
|
(113.5) |
0.0 |
0.0 |
0.0 |
Long Term Liabilities |
|
|
(985.1) |
(1,050.5) |
(1,027.5) |
(1,004.5) |
Long term borrowings |
|
|
(304.6) |
(439.5) |
(439.5) |
(439.5) |
Other long term liabilities |
|
|
(680.5) |
(611.0) |
(588.0) |
(565.0) |
Net Assets |
|
|
400.6 |
383.3 |
441.9 |
515.7 |
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
Operating Cash Flow |
|
|
158.4 |
106.4 |
151.1 |
162.6 |
Net Interest |
|
|
(13.5) |
(6.5) |
(8.0) |
(6.5) |
JV/Minorities |
|
|
(5.2) |
(7.0) |
(7.0) |
(7.0) |
Tax |
|
|
(55.7) |
(41.7) |
(45.3) |
(46.1) |
Capex |
|
|
(37.4) |
(39.7) |
(42.0) |
(42.0) |
Acquisitions/disposals |
|
|
0.0 |
(5.2) |
0.0 |
0.0 |
Financing |
|
|
0.0 |
(1.9) |
0.0 |
0.0 |
Dividends |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
Net Cash Flow |
|
|
46.6 |
4.5 |
48.8 |
61.0 |
Opening net debt/(cash) |
|
|
(274.3) |
(320.9) |
(300.7) |
(349.4) |
HP finance leases initiated |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
Other |
|
|
0.0 |
(24.7) |
0.0 |
0.0 |
Closing net debt/(cash) |
|
|
(320.9) |
(300.7) |
(349.4) |
(410.4) |
Source: Company accounts, Edison investment Research. Note: Other finance includes JV income and FX gains/losses on cash balances. Edison norm includes FX gains/losses on cash balances but excludes pension net finance costs.
|