- Shares drift despite strong first half results
- Interim dividend increased by 15%
- Update on filters disposal by end of September
Shares in FTSE 250 components and packing firm Essentra (ESNT) drifted 4% lower despite the announcement of first half results showing strong revenue and profit growth in both the filters and components businesses.
This was reflected in a 15% increase in the interim dividend from 2p to 2.3p.
Management also said it would return a portion of the packaging disposal proceeds to shareholders following the conclusion of its strategic reviews.
WELL POSITIONED
Chief executive Paul Forman struck a confident note whilst acknowledging the uncertain macro-economic outlook.
‘Whilst we are mindful of the wider macroeconomic uncertainty, the group remains well positioned with organic and inorganic growth opportunities, strong order books and a robust balance sheet. We expect to deliver adjusted operating profit in line with the board's expectations.’
Profit before tax increased by 27% to £24.3 million, while EBITDA (earnings before interest, tax, depreciation and amortisation) for the continuing businesses rose by 44% to £35.3 million.
The components and filters division experienced robust first half like-for-like revenue growth of 13% and 15% respectively.
Pricing accounted for 10% of the revenue lift for the components division, vindicating management claims that it had the pricing power to offset inflationary cost pressures.
Growth in filters was driven by outsourcing contract wins coupled with an increase in joint venture volumes in China.
STRATEGIC UPDATE
The group took its first step towards becoming a pure-play components business when it announced the sale of its packaging operations to Austria's Mayr-Melnhof in June, which is expected to complete in the final quarter of this year.
Management expects to provide an update on the strategic review of the filters division by the end of September.
The business generated roughly £300 million in sales last year, similar to the components business.
Analysis by Numis suggests that a disposal of the filters business for £225 million would leave the core components business trading on nine times EV (enterprise value) to EBITDA, which is inexpensive for a firm with a 19% operating margin and over £500 million in cash.
At the same time, management is actively engaging in potential merger and acquisition activity to bolster the components business.
On an analyst conference call in June, management confirmed it was in active discussions with various parties and were ‘bound by three non-disclosure agreements at present’.
EXPERT VIEW
Commenting on today’s first half results, Numis analyst James Beard remarked: ‘Whilst the business is in a period of flux as it transitions from three divisions to one, we continue to like the long term potential of the components business’.
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