You certainly couldn't accuse Essentra (ESNT) of downplaying its ongoing travails. In January, the supplier of plastic and fibre products warned of "a further significant decline in both revenue and profitability" at its health and personal care packaging (HPCP) division, the third warning on profits in the space of 12 months. Subsequent publication of the group's full-year figures showed adjusted underlying operating profits plummeting 35 per cent, together with a significant decline in like-for-like revenues.
- Improved access to US market
- Strategic review aimed at the HPCP division
- Sharp contraction of operating margin
- Trading at high cyclically adjusted valuation
- Regulatory issues in China
- Integration issues
There were in-house problems that hindered performance at the group's filter products business, where constant currency sales fell 14 per cent to £374m and operating profits were down by a quarter to £59m. The segment failed to replace a sizeable contract in Europe that matured during the year. There were also issues linked to destocking in the Chinese market and a slower-than-expected ramp-up in new contracts. And prospects in China, the primary growth market, are also increasingly under pressure on the regulatory front due to new restrictions on advertising and smoking in public places.
Meanwhile, the component solutions division suffered due to weak US trading, with constant currency revenue dropping 3 per cent to £303m and profits off 12 per cent at £54.4m.
However, ongoing integration issues at the HPCP division provided the really dire news. Essentra completed the $455m (£373m) acquisition of Clondakin Group at the start of 2015. The strategic rationale to enhance access to the highly lucrative US pharmaceutical and beauty packaging market was never in doubt. It's just that management has struggled to bed-in nine of the 24 sites and three are still the subject of remedial measures. The culmination of the problems was a 6 per cent constant currency revenue fall last year, to £430m, and a 44 per cent collapse in operating profit to £34.5m.
It is the job of recently appointed chief executive Paul Forman to sort the mess out, and he's currently focused on "specific short-term focus and remedial attention" in the HPCP division. The planned sale of Essentra's porous technologies division in the first quarter should make Mr Forman's job easier, by reducing net debt to 1.4 times cash profits from 2.3 times.
| ESSENTRA (ESNT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 527.5p | MARKET VALUE: | £1.39bn | |
| TOUCH: | 527.5-528p | 12M HIGH / LOW: | 894p | 367p |
| FORWARD DIVIDEND YIELD: | 3.9% | FORWARD PE RATIO: | 18 | |
| NET ASSET VALUE: | 226p** | NET DEBT: | 63% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 0.87 | 133 | 41.1 | 18.3 |
| 2015 | 1.10 | 161 | 47.0 | 20.7 |
| 2016 | 1.10 | 119 | 36.3 | 20.7 |
| 2017* | 1.01 | 95.2 | 28.9 | 20.7 |
| 2018* | 1.00 | 94.3 | 28.6 | 20.7 |
| % change | -1 | -1 | -1 | - |
Normal market size: 3,000 Matched bargain trading Beta: 1.27 *Numis forecasts, adjusted PTP and EPS figures **Includes intangible assets of £582m, or 221p a share. | ||||
