Three of today’s biggest fallers are Antofagasta (LSE: ANTO), Essentra (LSE: ESNT) and ITM Power (LSE: ITM).
What’s gone wrong at each firm — or are these falls a buying opportunity for smart investors?
Essentra
One of this morning’s biggest fallers was specialist packaging, plastics and cigarette filter supplier Essentra, which fell nearly 8% when the market opened.
The firm’s interim results appeared pretty decent at first glance. Thanks mainly to the acquisition of Clondalkin Specialist Packaging in January, total revenue rose by 27% to £550m, while adjusted operating profit was up 18% to £82m. Shareholders were rewarded by an 11% increase in the interim dividend, which will rise to 6.3p per share.
However, like-for-(LFL) like results, excluding acquisitions, were more disappointing. LFL revenue rose by just 2%, while LFL adjusted operating margin rose by just 0.2%.
The problem is that Essentra’s Pipe Protection Technologies business is heavily exposed to the US oil and gas industry, and is suffering badly. PPT sales were down by 63% compared to the first half of last year, as a result of the big drop in US onshore drilling activity.
As a result, the outlook for 2015 is a little uncertain, although Essentra still expects to deliver “balanced, profitable growth in 2015”. At 18.4 times 2015 forecast earnings however, I think Essentra looks fully-priced.
ITM Power
Final results from small-cap fuel cell company ITM left investors a little disappointed, with the shares down 4% at the time of writing.
The problem may be that, despite technical product improvements, sales are proving slow to come.
According to ITM, trading for the year was “slower than originally anticipated”. Sales revenue was just £1.6m, although this was supplemented by grant income totalling £3.4m and a £4.86m investment by JCB.
As of 30 April, ITM had £10.5m of projects under contract or in final negotiations, along with £6.6m of cash in the bank. However, the firm’s cash burn rose to a new record of £8.03m in 2015, resulting in an operating loss of £5.7m.
ITM needs a rapid increase in new orders if it is to break even before its £6.6m cash balance is exhausted.
Antofagasta
Shares in Chile-based copper miner Antofagasta slipped nearly 3% lower this morning after the firm said it would spend $1bn of its $2.4bn cash balance on buying a 50% stake in the Zaldivar copper mine, which is currently owned by US firm Barrick Gold Corporation.
According to Antofagasta, the Zaldivar mine is already full established and had operating cash costs of $1.79/lb in 2014, which suggests it could remain cash generative even at today’s copper price of $2.38/lb. If copper rebounds, Zaldivar could provide a significant boost to Antofagasta’s profits, in my view.
Indeed, the fall in Antofagasta has brought the firm onto my value radar, and I’m starting to think that Antofagasta could be a profitable medium-term buy.
