Essentra shares tumble following poor end to 2022

Shares of Essentra fell on Friday after the component maker reported a drop in sales by the end of 2022 against a weaker economic backdrop.

The molded plastics and heavy-duty lock maker revealed that fourth-quarter comparable adjusted sales were down 3 percent compared to the same period last year.

Sales in Europe continued to grow at a modest pace, but the group noted that trading was impacted by “distributor destocking” in the Americas and draconian Covid-related lockdown restrictions across China.

The business was also impacted by a strong comparative performance last year, when the components and filter businesses both posted double-digit sales growth.

Essential shares was down 9.2 percent, or 21.5 pence, to 212.5 pence late Friday afternoon after the release of the latest trading update, making it the worst performer on the FTSE 250 Index.

Still, the company said it expects to deliver a “robust financial performance” for fiscal year 2022, with an annual like-for-like revenue increase of about 6.5 percent based on continuing operations.

The adjusted operating profit outlook also remains in line with management forecasts, while investors will receive approximately £150 million in the first quarter as part of a special dividend.

The proceeds of the payout come from the £262 million sale of its packaging business to Austrian manufacturer Mayr-Melnhof Group and the acquisition of its filtration business by Centaury Management.

Additional money from the divestments will be used to boost defined benefit plans and reduce net debt, which stood at £248.9 million at the end of June, by advancing the redemption of part of US private debt.

The two deals also saw Essentra move to a supplier of pure-play components, in line with a strategic goal announced last October.

Just before the completion of the sale of its filter segment, the Milton Keynes-based company announced the £29.5 million purchase of Wixroyd Group, a hardware component manufacturer based in Chichester, West Sussex.

Scott Fawcett, who recently succeeded Paul Forman as CEO of Essentra, stated in early December that the company would initially focus on selling Wixroyd products in continental Europe.

Commenting on Friday’s acquisition of Wixroyd, analysts from broker Jeffries said, “To us, it looks like a neat addition with a strong EBITA margin profile and a good strategic fit for the group.”

They added: “As the UK accounts for around 80 percent of Wixroyd’s revenue, we look forward to expanding into the EU (cross-selling) as a particularly attractive opportunity.”

However, they warned that the coming year will “present challenges” for Essentra given the difficult economic conditions.