Essentra rallies as Deutsche Bank sees recovery and upgrades rating to 'buy'

Essentra plc’s (LON:ESNT) shares got a boost as Deutsche Bank raised its rating on the supplier of plastic and fibre products to ‘buy’ from ‘hold’ and lifted the target price to 600p from 425p. Earlier this month the company reported a decline in full year earnings as it faced issues integrating Clondalkin, the US pharmaceuticals and beauty packaging company acquired in 2016. The group also blamed “self-inflicted” problems and slowing sales for the drop in pre-tax profits. It also said revenue and profit were likely to fall in 2017 following several profit warnings. Deutsche Bank, however, sees recovery following the appointment of Paul Forman as chief executive in January. Forman plans to stabilise the group and improve its struggling health and personal care packaging business. “We did not have enough conviction to turn positive after the January warning but Paul Forman has now spent more than 50 days at Essentra and his message remains that the issues are mainly self-inflicted and can be reversed,” the bank said. The bank expects a rebound in the health and personal care packaging business with margins improving followed by revenue growth. It highlighted that the disposal of the company's Porous Technologies business, announced last August, is on track 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’,” Deutsche Bank said. Shares rose 3.10% to 546.96p in early trading.