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Essentra returns to profit growth

The group is busy fixing past mistakes
August 3, 2018

Essentra (ESNT) chief Paul Forman’s efforts to fix his predecessor’s poorly executed diversification strategy showed signs of further progress in the first half of 2018. From a stable revenue base, the specialist packaging group grew profits for the first time since 2015, leading to an appreciative 4 per cent mark up in the share price in early morning trading.

IC TIP: Hold at 505p

Adjusted operating profits rose 4.7 per cent at constant currencies to £43.5m as Essentra widened margins in three of its four divisions. As expected, the components segment was once again the stand-out performer. Operating profits there climbed 21 per cent, driven by cost saving initiatives and an 19 per cent uptick in sales – 9.6 per cent on a like-for-like basis – underpinned by management’s renewed focus on mid-sized enterprises and bid to win over customers with refined product and service offerings.

Equally pleasing was news that trading in the troubled health and personal care packaging arm, a main source of previous profit warnings, is stabilising. Management is confident that improved operational performance, following the closure of its loss-making Newport site, should pave the way for higher revenue and margins in the second half.

Brokerage Peel Hunt expects adjusted EPS of 24.6p for the year ending December 2018, rising to 27.8p in 2019 (from 22.3p in 2017).

ESSENTRA (ESNT)   
ORD PRICE:505pMARKET VALUE:£1.33bn
TOUCH:504.5-505p12-MONTH HIGH:575pLOW: 405p
DIVIDEND YIELD:4.1%PE RATIO:316
NET ASSET VALUE:226p*NET DEBT:39%
Half-year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201752319.45.66.3
201851320.85.76.3
% change-2+7+2 
Ex-div:27 Sep   
Payment:31 Oct   
*Includes intangible assets of £538m, or 204p a share