Essentra shares plunge as European weakness hits profits
Shares in Essentra fell by more than a quarter this morning as a slump in demand in the third quarter forced the plastics products maker to cut its full-year forecast.
The FTSE 250 company said European demand has “weakened” again, while the recovery in America is “progressing more slowly than expected”.
In July, the company already informed its shareholders that market conditions had improved after a difficult end to 2023.
However, Essentra said it was now forced to take “a more cautious view on the likely timing of further modest improvements in market conditions” and to take into account “adverse currency effects”.
Essentra pointed to a slowdown in Europe and a weaker than expected recovery in North and South America
Essentra now expects an adjusted operating profit of £40m to £42m for the full year, compared with the market forecast of £48.4m to £49.7m.
The company said: ‘The group had previously expected further modest improvement in volumes in the second half, supported by the continued recovery in demand across all end markets.
‘However, market conditions in Europe (including Turkey) deteriorated in August and September, in line with the weak PMI figures widely reported.
‘While the Americas region is reporting a slower recovery than expected, APAC remains broadly in line with expectations.’
Essentra shares The share price fell as much as 25 percent at the opening, but recovered late on Tuesday morning to a 19.4 percent drop to 134.8p.
Shares are down 9.1 percent over the past year and about 70 percent over the past five years.
The group said it is confident the business will recover “when normal growth returns”, supported by cost-cutting and efficiency measures.
Results for the three months ending September 28 will be announced on October 24.
Analysts at Peel Hunt maintained a ‘buy’ rating on Essentra but cut their price target to 230p from 300p, adding that the company’s balance sheet ‘remains strong and is positioned to benefit from future organic and inorganic opportunities’.
The analysts said: ‘While Essentra continues to reduce its cyclicality, performance is still linked to global production in the sector.
‘It is important that the model remains closely aligned to market recovery and that the potential to deliver strong margins and cash flow remains undiminished.’
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