Bet on Essentra's FTSE 100 ambition

Full-year results for 2014 underline this momentum as the group once again beat market expectations with a 9 per cent jump in like-for-like sales in a period when many cyclical peers continued to struggle. But it doesn't stop there. Plans have now been unveiled to transform Essentra into a FTSE 100 giant within the next five years. This may seem overly ambitious to some, but we believe that Mr Day's track record and the healthy shape of the business make this mission entirely feasible.

Within its target to more than double group sales to £2.4bn, broker Jefferies expects £800m of revenues to come from new acquisitions. This will come as no surprise to those familiar with Essentra's strategy over the past few years. Since 2011, 13 businesses have been acquired, and Jefferies estimates the first 12 accounted for over 17.6 per cent of compound annual revenue growth between 2011 and 2014.

These additions have all been relatively low in cost, yet still enabled management to successfully reposition the portfolio to higher-growth mass market areas. Meanwhile, by far the biggest deal to date was the $455m (£287m) acquisition of Clondalkin in November last year. With Clondalkin on board Essentra has become a global leader in speciality packaging, helping it to tap into the healthcare packaging market, which is projected to grow as the world's population ages and regulation increases.

But management isn't about to abandon its three other divisions. Essentra's bid to double its market cap requires organic growth across all its segments, with two to three acquisitions already being mooted to assist this goal for the year ahead. Should a business appear that fits the groups' strategy, Mr Day says strong cash generation means there is plenty of room on the balance sheet to buy it. Failing that, he is also open to the idea of another share placing.

One-third of sales growth, meanwhile, is expected to be generated organically, while management's cost-cutting measures will help improve profitability. Although Mr Day says that Essentra is now much better organised and marshalled, he believes the group's high margins can continue to widen by shutting down sites, creating synergies from prior acquisitions, improving inventory management, centralising back offices and pruning low-margin work. At present, operating margins within the group's four divisions range from 15 per cent to 24 per cent.

There are also plenty of reasons to be optimistic about the end markets its four units serve. Filters, for example, can count on growing numbers of smokers in Asia and the use of non-standard filters to differentiate products in a plain packaging environment. Moreover, as the only independent supplier of cigarette filters for the tobacco industry, it is well-placed to pick up outsourcing contracts from cost-cutting tobacco multinationals.

Elsewhere, its porous technologies unit, which manufactures products designed to regulate the movement of fluids and vapours, continues to move away from print cartridges into healthcare. Once again, ageing demographics indicate that hospitals offer huge potential for these niche range of products.

Essentra's thread protectors, meanwhile, are now mandatory for heavy duty pipes as environmentalists seek to avoid a repeat of the BP oil-spill disaster. High barriers to entry and strong pricing power in a market where brands are everything means operating margins here stand at 24.2 per cent. On the flip side, a low oil price means 2015 will bring project cancellations, although this this risk only relates to roughly 5 per cent of group sales.