Berenberg lowers target price on Essentra following unscheduled trading update

Essentra reported an unscheduled trading update on 17 September, which revealed softening European market conditions and a slower-than-anticipated rate of recovery in the Americas meant that management haf rebased its adjusted underlying earnings guidance for FY24 from £48.4m-49.7m to £40.0m-42.0m.

"While this reduction is disappointing, especially so soon after the group announced a tentative return to sequential and year-on-year like-for-like revenue growth during Q224, the update is perhaps of no surprise given the worsening PMI index data from the eurozone," said Berenberg.

The German bank moved its FY24 EBIT forecasts to the bottom end of the newly provided range, a roughly 19% downgrade, and reduced its price target by the same.

"We continue to regard Essentra as well placed to benefit from an eventual recovery in the backdrop, having been somewhat validated by Essentra’s correlation with PMI as per this update, therefore suggesting that upside risk exists for our outer year forecasts," said Berenberg, which reiterated its 'buy' rating on the stock.

Berenberg added that Essentra currently trades on a 13.7x FY25 price-to-earnings ratio.

Reporting by Iain Gilbert at Sharecast.com