Essentra (LSE: ESNT) hasn’t had the best of it in recent times. The business support play has seen its share price dip by almost a fifth during the past 12 months as investors have fretted over the progress of its turnaround strategy. Indeed, just this week it sank to its cheapest since last February in the run-up to today’s full-year results.
But Friday’s release has given Essentra’s stock value a welcome shot in the arm, the stock last dealing 6% higher on the day.
The FTSE 250 business advised that pre-tax losses had narrowed to £5m in 2017 from £63m in the prior period.
Revenues rose 3% to £1.03bn, although this was thanks to favourable foreign currency movements — on a like-for-like basis they actually slipped 2% from 2016 levels. Having said that, the impact of hurricane activity in the US and Puerto Rico took a bite out of the top line in the period.
Commenting on the results, chief executive Paul Forman said: “I have previously expressed that restoring Essentra to sustainable, profitable growth is not a rapid journey, and we clearly have a lot of work still to do. However, together we have made great progress and tangible improvement in 2017, so we are already well on our way.”
Back to growth
With Essentra predicted to move back into a period of earnings expansion now — rises of 19% and 14% are forecast for 2018 and 2019 — brokers are also expecting the firm to start lifting dividends again too.
So after paying a 20.7p per share reward for each of the past three years, Essentra is anticipated to lift the dividend to 20.8p this year and again to 20.9p next year. Consequently investors can tap into tasty yields of 4.4% and 4.5% respectively.
That being said, cautious share pickers should recognise that these projections aren’t very well covered. Predicted dividends are covered just 1.3 to 1.4 times by predicted earnings through to the close of fiscal 2019, well below the widely-accepted security benchmark of 2 times and above.
Now Essentra is expecting to make further headway in 2018 and to finally report a return to like-for-like sales growth this year. Its progress is to be lauded, although it still has some way to go, and I therefore do not believe risk-averse investors should splash out on the stock today, particularly given its slightly-toppy forward P/E ratio of 17.9 times.
Bumper yields well protected
Indeed, I would be much happier to take my investment cash and to spend it on National Express Group (LSE: NEX) instead, and not just because of its far superior valuations.
The 8% earnings improvement predicted for 2018 leaves the bus operator dealing on a forward P/E multiple of just 11.5 times. An extra 4% profits rise is predicted for next year, and these bright projections lead to expectations of handsome dividend expansion.
The 13.51p per share reward of last year is anticipated to rise to 14.8p this year, and again to 15.8p in the following period. These figures yield a chunky 4.1% and 4.4% respectively.
To put the cherry on the cake, dividend coverage through to the end of 2019 stands at an impressive 2.1 times.
I am impressed by the splendid progress National Express continues to make in foreign climes, and with the company steadily expanding its international footprint I am convinced that both earnings and dividends should continue their trek higher.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Essentra. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.