Shares in diversified chemicals company Essentra (ESNT) gained 0.6% to 316p after reporting full year results in line with market expectations.
The company said the current year has started well it has encouraging order books.
The market had anticipated the positive nature of these results with the shares rising by 10% over the last 5 days. This explains the muted share price response.
Revenue increased by 12.6% from £896.5 million to £959.7 million. Operating profit moved ahead by 46.5% from £62.3 million to £83.9 million
Profit before tax increased by 60.7% from £46.6 million to £67.4 million. Adjusted basic earnings per share increased by 54.6% from 13.2p to 18.2p.
STRATEGIC REVIEW ON TRACK
In October 2021 Essentra announced both its packaging and filters division would undergo a strategic review, and would be divested in the second quarter of 2022, at the earliest.
This morning management confirmed timescales for the strategic review of these businesses.
Essentra’s packaging business has been successfully turned around and now offers a focused business proposition in secondary healthcare packaging.
It will be an attractive asset to many financial and strategic buyers.
However, Essentra filters is a more difficult sell. If no cash buyer is found, Essentra will try to combine it with a competitor or spin it off.
Following the disposals, Essentra will become a standalone components business. Key peers including Electrocomponents, and Diploma trade on average at a clear premium to Essentra.
The components business will have better growth, profitability, customer diversification, cash conversion and return on capital employed than the current Essentra business.
This should provide a catalyst for the shares to rerate.
DISCUSSIONS ON COMPONENT DEALS
Despite management being in the midst of a strategic review, it is also actively engaging in potential merger and acquisition activity to bolster the components business.
On the analyst call management confirmed they are in active discussions with various parties and are ‘bound by three non-disclosure agreements at present’.
Peel Hunt analyst Charles Hall suggests ‘The key to the share price in the short term is the outcome of the Strategic Review-the process to move to a pure-play Components business is ongoing and the review is progressing in line with expectations’.
