- Eco cigarette filters show commercial promise
- An improvement in all three of its revenue streams
Interim results show Essentra (ESNT) steadily picking up again after Covid’s knockout blow to its profits last year, helped up by a recovering market, price increases and new eco-friendly products.
The company saw reported operating profits of £30m, almost double that of last year’s £15.6m. While that’s still only half its 2019 levels of £60m, the quarter on quarter upward trend is promising. Indeed, the company recorded margin expansion across all divisions through the second quarter, while adjusted operating cash flow edged up by 1 per cent from the previous half year.
The packaging and component’s provider saw an improvement in all three of its revenue streams: components, packaging, and cigarette filters. Components saw an improvement in like-for-like sales despite challenges to the supply chain, including Brexit. Prices are expected to increase to offset pressure from rising costs. Packaging has benefited from the growth (albeit slow-paced) of non-essential healthcare procedures and the increase in prescriptions after lockdown.
Eco cigarette filters have generated a lot of interest and boosted the company’s customer base and outlook. Analysts at Peel Hunt described the eco filters as “potentially transformational given the 2023 EU legislation on single use plastics and growing focus on sustainability”.
In July, the company issued new medium and long-dated private placement debt amounting to $250m (£180m). The company has total liquidity of £450m, providing capital to grow their pool of acquisitions, while net debt is equivalent to a manageable 1.7 times cash profits.
Substantive progress has been made since last year’s disruption, evidenced by the resumption of the interim dividend. The shares are by no means expensive at 15 times consensus earnings, but macro challenges are still with us. Hold.
IC view: Hold, 318p, 28 Aug 2020
| ESSENTRA (ESNT) | ||||
| ORD PRICE: | 284p | MARKET VALUE: | £ 857m | |
| TOUCH: | 282-285p | 12-MONTH HIGH: | 339p | LOW: 231p |
| DIVIDEND YIELD: | 1.9% | PE RATIO: | 47 | |
| NET ASSET VALUE: | 206p* | NET DEBT: | 33% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2020 | 448 | 7.90 | 2.30 | nil |
| 2021 | 475 | 23.1 | 6.60 | 2.00 |
| % change | +6 | +192 | +187 | - |
| Ex-div: | 23 Sep | |||
| Payment: | 29 Oct | |||
| *Includes intangible assets of £503m, or 167p a share | ||||
