Essentra shares plunge as European weakness hits earnings

Essentra shares fell more than a quarter this morning as a drop in demand in the third quarter forced the plastics products maker to cut its full-year forecast.

The FTSE 250 firm said European demand had “softened” once again, while the Americas had seen “a slower rate of recovery than anticipated”.

In July, the company had informed its shareholders that market conditions had improved after a difficult end to 2023.

But Essentra said it had now been forced to take “a more cautious view on the likely timing of further modest improvements in market conditions” as well as taking into account “adverse currency reversal”.

Essentra now expects to post full-year adjusted operating profit of £40m-£42m, compared with the market forecast of £48.4m-£49.7m.

He said: ‘The group had previously anticipated a further modest improvement in volumes in the second half, underpinned by the continued recovery in demand in end markets.

‘However, during August and September, in line with the widely reported weak PMI indicators, market conditions in Europe (including Turkey) have softened.

‘While the Americas region has reported a slower pace of recovery than anticipated, the APAC region remains broadly in line with expectations.’

Essentra shares fell as much as 25 percent at the opening but recovered to trade 19.4 percent lower at 134.8p late on Tuesday morning.

Shares have lost 9.1 percent over the past year and about 70 percent over the past five.

The group said it remains confident in its ability to recover “when normal growth returns”, supported by cost-cutting and efficiency measures.

It will publish its results for the quarter ending September 28 on October 24.

Analysts at Peel Hunt maintained a buy rating on Essentra but cut their target price from 300p to 230p, adding that the company’s balance sheet “remains strong and capable of taking advantage of future organic and inorganic opportunities”.

Analysts said: ‘Although Essentra continues to reduce its cyclicality, performance is still linked to global industrial production.

“Importantly, the model remains fine-tuned for market recovery and the potential to deliver strong margins and cash flow remains undiminished.”