Essentra boosted by Deutsche Bank upgrade

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.

At 1010 GMT, the shares were up 1.5% to 538.50p.