Numis cuts Essentra to 'add' after profit warning

Numis downgraded its stance on Essentra to ‘add’ from ‘buy’ and cut the price target to 470p following the company’s profit warning on Monday.

The brokerage said the profit warning – the second this year – indicates the scale of the challenges facing new chief executive officer Paul Forman.

It said the profit downgrade of around £20m for 2016 is split about 75% Packaging and 25% Filters.

Numis cut its 2016 earnings before interest, taxes and amortisation forecast by 14% to £139.3m, which is within management's £137-142m range. It also downgraded 2017 and 2018 EBITA forecasts by 20-25%, reflecting a more cautious view on future revenue and profit progression.

“Whilst we believe there are few near-term catalysts for a re-rating, we maintain our view on the longer-term attraction of Essentra's packaging and distribution businesses, the opportunity for the new CEO to simplify the group, and note the yield support from the maintained dividend,” Numis said.

On Monday, Essentra cut its sales and profit guidance for the year on the back of delays in delivering projects, a soft Chinese market and the slow integration of an acquisition.

The FTSE 250 plastics company now expects the calendar year will see a 7% like-for-like revenue decline in line with the first half of the year, with adjusted operating profit of £137-142m, which was revised down from £155-165m.

At 1022 GMT, the shares were down 3% to 381.10p.