Essentra is often thought of as a packaging company and it does parcel up, among other things, lipsticks and perfumes. However, it also does much more — possibly too much more, given the vast array of products it makes and distributes and despite the endeavours of its chief executive to simplify this sprawling beast of a business.
Paul Forman, 54, brought in nearly three years ago to sort out the company, has streamlined divisions, bought and sold various bits and pieces and in the process has improved margins and restored underperforming operations to growth. What he has failed to do, however, is rescuscitate the share price, which remains in the doldrums and close to eight-year lows.
The most important moment in Essentra’s history probably came in June 2005, when the former Filtrona cigarette filter maker was spun out of the Bunzl conglomerate and took on its own stock market listing. The group, which like Bunzl has made acquisitions a staple part of its growth strategy, still makes filters for the big tobacco companies and it also now produces parts for the new generation of e-cigarettes and “heat not burn” smoking products. Its packaging division makes cartons for the health and personal care sector, as well as leaflets and the adhesive labels for pill bottles and foil packs for tablets. Components makes a wildly diverse array of parts, including caps and plugs, knobs, handles and grips, as well as tools and precision instruments.
Essentra is a constituent of the FTSE 250 with a market value of £1 billion and in its most recent financial year it made a pre-tax profit of £36 million on revenue of just over £1 billion.
Mr Forman’s main achievement over the past year has been to effectively dispose of the group’s specialist components division, auctioning off the vast majority of its collection of small niche businesses, then latterly folding its tear tapes operation into the filters unit. He also managed to execute one of his desired “game-changer” initiatives, securing an outsourcing deal to produce a range of specialist filters for one of the big tobacco companies, worth about £8 million a year in revenues over the six-year life of the arrangement. This should help to reverse a recent fall in revenues in filters, which is exposed to the long-term decline in smoking.
The businesses that Essentra is left with should be in a strong position for growth. Packaging, the problem child responsible for three profit warnings during the year before Mr Forman joined, is growing again, albeit on a small profit margin of only 4.5 per cent during the first half. The hope is that profitability of this division will begin to improve as the benefits of operational improvements and investment in new equipment and staff begin to come through. The two other divisions are motoring, with components running an operating margin of about 23 per cent and filters managing a perfectly respectable 12.9 per cent.
What happens next with this group is an open-ended question; the three divisions do not fit instinctively with each other and it is conceivable that Essentra disposes of the filters business or even splits further at some stage to concentrate on either components or packaging.
The share price, 3p, or 0.8 per cent, higher at 398p yesterday and up a mere 6.7 per cent since this column recommended buying in January, is worryingly lacklustre. The shares trade at an undemanding 16.1 times Peel Hunt’s forecast earnings and will provide a dividend yield of a generous 5.4 per cent. This is a company worth sticking with while the improvements bed in and until the growth begins to come through.
Advice Hold
Why Well placed to benefit from improvements since 2017 and this should gradually push the share price higher
Future
It’s just as well that Future lived up to its name; if it hadn’t, this FTSE 250 publisher and specialist media group probably would no longer be with us, an inevitable casualty of the digital age.
Future was founded in 1985 in Somerset as a single magazine title, Amstrad Action, and became known for its technology, gaming and entertainment titles. Temporarily owned by Pearson, the academic publisher, it expanded through acquisitions and was listed in 1999. Faced with long-term decline in print media, Future moved to shore up its survival with acquisitions, mainly of brands and titles that needed to be re-energised, to expand its stable to include specialist titles for guitar players, clay shooters and photographers, among others.
As well as publishing in digital as well as print format, Future expanded its publications serving business people and moved further into events — it runs 56 exhibitions and conferences a year. Crucially, it has learnt to commercialise the data it has on its often highly tech-savvy readership and to help product sales through its news and reviews.
Last month, it embarked on its most adventurous buy in recent years — certainly under this management — by agreeing to buy TI Media, the print and digital magazine publisher, for £140 million in cash, part-funded through a share placing. TI Media publishes titles from Horse & Hound and Ideal Home to Woman’s Own and Chat.
Its concerted growth drive means that analysts reckon Future is on course to lift its annual revenues by 72.7 per cent to £215.2 million and to increase pre-tax profit by 18.2 per cent to £46.5 million when it reports full-year results this month. While transforming deals such as TI Media don’t come along every day, profits should continue to grow steadily. Unfortunately, the company’s impressive credentials have not escaped the City and Future’s shares, though down by 70p, or 4.7 per cent, to close at £14.18 yesterday, have rocketed over the past 18 months and are highly rated.
Valued at 31.7 times Panmure Gordon’s forecast earnings for a dividend yield of less than 0.05 per cent, they are a little pricey for this particular columnist.
Advice Avoid
Why Impressive and efficient but shares don’t come cheap
