Source: Sharecast
Berenberg stated that from its perspective, it seems that Coats has now fully hedged against all financial and demographic risks related to its legacy pension position, with the de-risking expected to cost between $90.0m-128.0m and make the temporary switch-off of annual scheme contributions from January 2024 permanent – a three- to four-year payback period in substance.
"Importantly, this milestone removes any lingering uncertainty and volatility in the equity story and leaves the group comfortably positioned (we forecast leverage of 1.6x at the end of FY 2024) and with a stronger FCF profile for the future," said the German bank, which reiterated its 'buy' rating on the stock.
Meanwhile, Berenberg noted that underlying trading "appears comfortable", and said it would expect end-markets to continue to recover.
"On the premise of a de-risked investment case, improvements to FCF generation and strong underlying trading, we raise our price target to 135.0p (from 120.0p), which would put the shares on a reasonable 17x FY 2025 P/E and a 5% FCF yield."
Reporting by Iain Gilbert at Sharecast.com