Analysts at Berenberg raised their target price on chemicals group Essentra from 275.0p to 295.0p on Tuesday following the firm’s capital markets day last week.
Berenberg said Essentra’s capital markets day had presented the company as “a pure-play components platform” that has “a strong position in a fragmented market”, as well as having the potential to act as a consolidator.
The German bank believes that Essentra should successfully execute a roll-up strategy, but also reckons that the company could be the subject of a take-private deal itself – once it has paid out its “large” £150.0m dividend, announced on the back of the disposal of its filters business.
“In any case, we were positively impressed by the ‘New Essentra’,” said Berenberg, which reiterated its ‘buy’ rating on the stock. “Our new 295.0p price target values Essentra at 11x EV/EBITDA, on par with its largest peer RS Group.”
“We do not think there is a reason why Essentra’s valuation should not converge with RS Group’s (formerly Electrocomponents) at circa 11x 2022E EV/EBITDA. Essentra has higher margins than its larger peer because it both manufactures and distributes, and has similar cashflow conversion from EBITDA. Essentra currently trades at circa 8x EV/EBITDA, adjusting for transitionary elements. We expect that Essentra will declare a 50.0p/share dividend in Q1 2023E. Payouts going forward will be subject to M&A activity, in our view.”
Reporting by Iain Gilbert at Sharecast.com
