Essentra cuts itself down to size

At the end of last year, Essentra (ESNT) operated three main divisions of roughly equal size – components, filters and packaging. By the end of this year, two of those could have different owners.

The company has already agreed the £312mn sale of the packaging arm to competitor Mayr-Melnhof and a strategic review of its filters arm will conclude by the end of the third quarter.

The result is that this is a set of results with a lot of background noise. The company is keen to focus on the components arm, which delivered 18.6 per cent growth in revenue and a widening of its adjusted operating margin to 20.4 per cent, from 18.1 per cent a year ago.

The filters arm grew by 15 per cent, again with operating margins improving as a Chinese joint venture that began last year turned profitable. Chief executive Paul Forman said the dual-track review of this business will conclude in the current quarter, involving either a “potential financial partner” or a demerger.

The packaging arm, counted as a discontinued operation, posted a huge loss, due to a £182mn writedown in its carrying value following the sale. If discontinued items are incorporated, the group declared a pre-tax loss of £195mn. Chief financial officer Jack Clarke insisted Essentra got a “very good price” for the packaging arm following a competitive sale process.

Putting a value on the remaining business is tricky. Although it is currently carrying net debt of around £310mn, this will be paid off once the packaging sale completes in October and Forman expects to return some of the proceeds to shareholders once the fate of the filters business is announced. Until its value is determined, it would be prudent to ignore some of the more bullish analysts’ forecasts. Hold.

Last IC View: Hold, 284p, 30 Jul 2021