"Those on the hunt for high yields at the start of 2018 need to tread carefully, as some income promises will inevitably not be kept.High dividend yields look attractive on paper, but should be treated with a healthy dose of scepticism. As share ..."
"Essentra blown off track by hurricane, says Peel Hunt
Plastic products maker Essentra (ESNT) has calculated the cost of damage from hurricane Maria at its Puerto Rico sites which will hurt full-year results by more than expected, says Peel Hunt.
Analyst Charles Hall retained his add recommendation and target price of 585p on the stock, which was trading up 1.7%, or 8.75p, at 511p after a third quarter trading statement.
This showed like-for-like growth was modestly positive at 1-2%, compared to -4% in the first half of the year. However, the bill of repairing hurricane damage was higher than expected.
The company has quantified the hurricanes impact at £1.7 million to £2.5 million before insurance recovery thus far, which is likely to result in a slightly higher full-year impact than our initial forecast of £3 million, said Hall.
As a result we are reducing our 2017 forecast by £1 million, but make no change to 2018. The underlying performance continues to improve, albeit this years numbers are being held back by the hurricane impact. "
"Hurricane impact at Essentra will be short term, says Peel Hunt
Recent hurricanes have affected the Houston and Puerto Rico operations of plastic products maker Essentra (ESNT) but Peel Hunt expects the impact to be short term.
Analyst Charles Hall retained his add recommendation and target price of 585p on the stock, which was trading down 2%, or 10p, at 495p at the time of writing.
Hall said the extent of the damage was relatively limited, with the main issues being around loss of power and employee welfare.
The company expects the impact to be £500,000-£1 million in Houston and the costs in Puerto Rico are running at £500,000-£750,000 per week, albeit a significant part will be covered by insurance, he said.
The company will be looking at contingency plans although this will depend on customers decisions. We assume the issues will take a number of weeks to resolve and so are reducing our 2017 estimates by £3 million to £76.4 million but make no changes to future years. "
"Packaging and filter products producer Essentra was on the front foot on Monday as Deutsche Bank bumped its rating up to 'buy' from 'hold' and hiked the price target to 600p from 425p.
Deutsche said it did not have enough conviction to turn positive on the stock after the profit warning in January, but chief executive Paul Forman has now spent more than 50 days in the role and his message remains that the issues are mainly self-inflicted and can be reversed.
DB noted the Porous disposal is said to be on track and so leverage is robust.
"Following the strong re-rating, better entry points might be possible but we believe Essentra offers a classic medium-term self-help story and upgrade to buy."
However, the bank cut its forecasts to reflect a more gradual recovery. It reduced its estimate for 2018 earnings before interest, tax and amortisation to £102m from £111m.
"We believe in a bounce-back at HPC packaging: first margins improving as double costing falls out (2018E-beyond); followed by revenue growth, which, in our view, can take longer (H2-18E, 2019E). Investors in the story should also keep in mind the trends in the other businesses comprising the Group, most of which also had a weak 2016, thus recovery should not be taken for granted."
Earlier this month, Essentra posted better-than-expected full-year earnings and maintained its dividend payout, but guided towards lower sales and profits in 2017."
Did anyone else watch this on Friday? Paul F seems to know his audience, although a bit flippant he answered most of the questions and painted a story of internal failure which he believed could easily be rectified. Price movement seems to reflect his optimism
I listened to this (now not available as it had a 7-day expiry) and thoughts are:
1 - new CEO stopped short (just) of openly criticising outgoing CEO.
2 - quite clearly cultural issues and lack of investment in people and infrastructure (IT was mentioned)
3 - new CEO says its a fundamentally sound business with self-help on basics being needed
4 - no comment (that I can recall at least) on balance sheet. If trading slips I'm not sure how much headroom they have although hinted at disposals / structuring which should benefit
I own some stock, got in after the second profits warning last year, and therefore want to believe that this is a long play upside. With a bit of tidying up and TLC has the potential to show decent upside over 2-3 years. New(ish) Chair has the experience to deliver. Not 100% sure about new CEO track record (Coates and L&B did not obviously thrive under him) but certainly talked a lot of sense.
"Jefferies downgraded its rating on Essentra to 'hold' as the cigarette filters and plastic packaging manufacturer's "self inflicted wounds" need time to repair.
The profit warning on 22 January outlined perfectly that new chief executive Paul Forman "has a sizeable job on his hands".
"The group needs to undergo significant change and while there is recovery potential, remedial work is needed, the recovery will take time to come through and will come from a lower-than-expected starting point."
Forman has outlined the areas of the group that need major work to repair and drive improvement.
"There is much work to do to get the group back to full health, and it will take time for the recovery to come through in earnest," Jefferies said.
"A fundamental change in culture is needed, but most the issues faced are self-inflicted, not structural in nature."
Analysts cut their full year PBT and EPS forecasts by 4%, but for the next two years take a more cautious view of the HPCP recovery and lower margin assumptions compared to other analysts and so raised their target to 450p from 445p "to reflect recovery multiples". "
"Citigroup downgraded Essentra to 'neutral' from 'buy' and cut the price target to 430p from 500p following the company's third profit warning in the space of a year on Monday.
The maker of cigarette filters and plastic packaging cautioned that it expects profit to be below expectations due to operational issues at its health and personal care packaging unit.
For the 2016 calendar year, it expects operating profit to be at the bottom of or modestly below its previous guidance of £137m-£142m. The company said that due to continuing operational issues in the Health & Personal Care Packaging unit, there was a further "significant" decline in revenue and profitability during the last two months of 2016, and there is no expectation of a near-term improvement in 2017.
Citigroup cut its earnings per share forecast for FY16 by 4%, for FY17 by 22% and FY18 by 21% as it incorporates further margin erosion. The bank now expects profit to drop to £12.9m in the second half of 2016 from £22.1m in the first half.
Citi said that in FY17, further measures will need to be taken to stabilise costs at underperforming sites and improve service levels to re-ignite sales. While these measures are being taken, it expects H&PC margins will remain depressed, declining to 6.5% in FY17 from 13.6% in FY15."
"Following successive earnings downgrades in 2016, the shares are trading at a steep valuation discount to both historic averages and the broader FTSE 250.
"Despite the valuation support, Essentra is experiencing operational challenges, which we assume will limit earnings recovery in FY17e. We do not expect near-term catalysts to emerge until the company re-defines its strategic direction under new CEO, Paul Forman, who began 1 January 2017."
I tucked into some more at £4. The pharma packaging business looks to be in a mess with too rapid integration causing all sorts of problems. The sale of Porous materials will complete fairly shortly. The strategic review is bound to either identify divisions for sale or putting the whole group up for sale. I'll be amazed if this hasn't been gobbled up by a big industrial conglomerate like Berkshire Hathaway by the end of the year.
Still like the look of this, but have closed out. 200 pip drop on the DAX so far this morning with FTSE starting to look weak. Considering the possiblity of a sell off in equities today/tomorrow and booking profits. Took 10 and 27p profit on the 2 positions respectively.
Looks like a good risk reward from here. Clear support at around 466. If that fails I have 458 and 424 as potential supports. But I'll drop it quickly if 466 does fail. Not looking to accumulate it, just a quick trade.
I am back in profit although I should have bought more at the lower levels. I think TX2 you are being slightly harsh. Essentra is a big beneficiary of lower sterling. Institutions and Warren Buffett for that matter love long term growth situations like this where they buy and hold. Short term setbacks are buying opportunities for the long term. I was too early tucking in to maximise my profit but I still think they are heading for £7 where I'll say thank you and find another trading opportunity.
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