Essentra Business Model, Product Mix, & Pricing Power
Former Managing Director at Essentra
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Former Managing Director at Essentra
Interview Transcript
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Their aim is 5% organic growth and to double EBITDA.
There are two points I'd like to make. Firstly, in terms of performance, while Essentra has indeed sold filters and packaging to become a pure play, I believe this is a rather simplistic approach. It implies a focus on their current operations, particularly as components are generating a significant portion of the group's profit. It makes sense to reinvest this profit back into components. However, the issue is that they are fundamentally supplying to industrial markets, leaving them exposed to macroeconomic effects. When other businesses were part of the group, there was a natural hedge against these macro effects. For instance, filters, which were sold to cigarette companies, were not impacted by recessionary effects. This provided some natural protection, which is now lost since the businesses have been split.
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Then you have the opex and for EBIT, you should have a healthy EBIT margin.
In my current role, when I evaluate assets, one of the questions I ask is, what does this business do when times get tough? This is a question I would pose to Essentra and RS as well. If you look at RS's recent results, they're showing exposure to end markets. When times get tough, they have a couple of options. They can spend more money on marketing. That's really the only option they have. They can increase marketing to try and pull more back in. They're not going to suddenly win a £300,000 contract because that's not their business model.
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What percentage do you think is critical?
Perhaps 10%. I think it's a stretch to say that it's all critical. Some of their products, if they didn't supply them in time, could cause a line stop in automotive, for example. That's where I put the 10%. Critical could mean many things, but causing a line stop, I don't think, is critical.
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