Essentra PLC

Essentra PLC (LON:ESNT) is an FTSE 250 listed manufacturer and supplier of caps, plugs, plastic, fibre, and packaging products.

ESNT will pay an interim dividend of 2.00 pence per share on 29 October 2021, while the ex-dividend date will be 23 September 2021.

Investment Rationale for Valuation – Speculative Buy at GBX 288.50

• The Company had resumed interim dividend for H1 FY21, while it had not paid any interim dividend in the prior year.
• The Packaging division was expected to achieve an industry average profit margin of around 8-10% by the end of 2021.
• ESNT will consolidate the footprints of the Components division in China with the acquisition of Jiangxi Hengzhu Electrical Cabinet Lock Co.
• The top-line revenue, bottom-line profitability, and net debt had witnessed substantial improvements during H1 FY21 as compared to H1 FY20.
• From a technical standpoint, the MACD line is trading above the signal line, indicating an upside potential in the stock price.

Key Risks

• Changes in regulations in the chemicals industry can affect the business environment.
• There should be a proper supply chain integration, and stringent safety measures need to be put in place to prevent incidents.
• The fluctuation in foreign exchange rates can bring down the top-line revenue of the Company.
  

Recent News

On 03 August 2021, ESNT updated that it had completed the acquisition of Jiangxi Hengzhu Electrical Cabinet Lock Co. Moreover, the acquisition would remain earnings accretive and generate significant value for the shareholders over the long term. 

H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as of 30 July 2021)

 (Source: Company result)

• On an LFL basis, the Company had achieved modest revenue growth of around 7.5% during H1 FY21 as compared to H1 FY20. Moreover, the overall revenue increased by around 5.9% during the period.
• On the profitability front, ESNT had reported basic earnings per share of 6.6 pence during H1 FY21, an increase from 2.3 pence reported in an equivalent period of 2020.
• With regards to the balance sheet, the Company had managed to reduce the net debt from £297.0 million as of 30 June 2020 to £212.0 million as of 30 June 2021.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company had expected that the Components & Filters division would carry the positive momentum in H2 FY21. Moreover, the Packaging division would show modest growth during the remainder of 2021, boosted by the expectations of a strong recovery in global healthcare systems. Furthermore, ESNT expects to report an FY21 operating profit in line with the expectations. The stock made a 52-week low and high of GBX 230.84 and GBX 338.60, respectively. 

Based on the decent jump in revenue & profitability during H1 FY21, encouraging outlook, and valuation as done using the above method, we have given a “Speculative Buy” recommendation on Essentra PLC at the current market price of GBX 288.50 (as on 12 August 2021 at 09:00 AM GMT), with lower-double digit upside potential based on 20.40x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Stock Spirits Group PLC

Stock Spirits Group PLC (LON: STCK) is an FTSE All-Share listed producer of spirits and liqueurs. The Company’s segments are differentiated into four divisions: Poland, Czech Republic, Italy, and Others.

STCK had paid an interim dividend of 2.98 euro cents per share on 18 June 2021, while the ex-dividend date was 27 May 2021.

Investment Rationale for Valuation – SELL at GBX 386.50

• The stock price surged almost 44% in a single day, boosted by the acceptance of takeover offer from CVC funds. Moreover, it is trading higher than the recommended price of GBX 377 per share.
• On the liquidity front, the current ratio of 1.32x remained lower than the industry median of 1.42x during H1 FY21.
• The stock price is trading very close to the 52 weeks-high, making it a lucrative exit point for the investors’ to liquidate the positions.
• From a technical standpoint, STCK is hovering above the upper Bollinger band, indicating a correction in the stock price.
• The 14-days RSI of ~90.90 is falling in the overbought zone, making it difficult for the stock price to show any upside momentum.

Key Risks

• Acquisitions to match rapid transformation may increase integration risk, and expected synergies may not be achieved.
• Any change in the regulations and government policies could affect the overall business of the Company.
  

Recent News 

On 12 August 2021, STCK updated regarding the recommended cash offer from CVC Funds to acquire the Company at approximately £767 million on a fully diluted basis. Each shareholder will receive 377 pence upon the completion of the deal, which would become effective between early December 2021 and January 2022 on meeting certain conditions

On 29 July 2021, STCK had appointed Juliette Stacey as the Non-Executive Director effective from 01 September 2021. 

H1 FY21 Financial & Operational Highlights (for the six months ended 31 March 2021, as of 12 May 2021)

(Source: Company result)

• The Company had shown a marginal growth of around 0.3% in the total revenue at constant currency during H1 FY21.
• With regards to the balance sheet, STCK had reported a net debt of €38.3 million as of 31 March 2021.
• The Company had shown a robust growth of around 7.6% in the interim dividend during H1 FY21. 

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Conclusion

The Czech business of STCK got adversely affected due to the on-trade closure and local competition during H1 FY21. Furthermore, STCK had reported a decline of about 13.6% in revenue and 21.2% in EBITDA at constant currency during H1 FY21. The Company had highlighted of the uncertainty in the short-term outlook because of the continuing disruption from the pandemic and the impact of the Polish small format tax. The stock made a 52-week low and high of GBX 183.70 and GBX 387.00, respectively.

Based on the lukewarm Czech Republic business, weak technical indicators and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Stock Spirits Group PLC at the current market price of GBX 386.50 (as on 12 August 2021 at 09:29 AM GMT).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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