Why I'd consider buying Essentra plc and Equiniti Group plc today

Technology, processing and payments services specialist Equiniti(LSE: EQN) has been flying lately, its share price up 67% in the past 12 months. However, today's interim results for the six months to 30 June disappointed investors, with the share price down a devilish 6.66% at time of writing.

Client list

Equiniti posted mundane revenue growth of just 1.5%, along with a 0.6% decline in organic growth, pleading interest rate headwinds and second-half bias. The good news came in the form of 100% client retention across all divisions, with new wins including Aon Hewitt, British Bankers' Association and House of Fraser, and fresh mandates from Alpha FX, Arix Bioscience, Global Ports, Ramsdens and Xafinity.

DS Smith, Imperial Brands, Lloyds Banking Group and Santander either renewed or extended, making up a strong client list. Equiniti also boasts strong cash flow conversion of 109%, free cash flow growth of 9.2% to £20.2m, underlying earnings per share growth of 6.2% to 6.9p and interim dividend growth of 6.7% to 1.75p, in line with the progressive dividend policy.

Moving on up

The £800m company's recent acquisition of Wells Fargo Share Registration & Services has been warmly received, as it should turn the company into an international play, rather than a domestic one. The outlook remains bright despite today's disappointment, even if recent share price growth has driven the valuation to 16.8 times earnings, on a yield of 1.9%. EPS growth is forecast to be just 2% this year, but that is set to hit 11% in 2018. Today's share price dip could be a good time to jump on board.

Packaging and filter products producer Essentra(LSE: ESNT) is in the early stages of a major and much-needed turnaround, after delivering its third profit warning in a year in January. The £1.41bn company, which makes cigarette filters and plastic packaging, warned that profits should miss expectations due to operational issues at its health and personal care packaging unit. Today's half-year results to 30 June cover what it calls a period of stabilisation and strategic development.

The Essentra-ials

Essentra still has a long way to go. Today it reported a 4% drop in like-for-like revenues, with adjusted operating profit down 35% at constant exchange rates to £43m, and basic adjusted earnings per share down 38% to 11.2p.

There was some good news. Net debt is now £207m, down from £379m on 31 December 2016, aided by the divestment of its Porous Technologies division. Operating cash conversion has improved from 59% to 70% year-on-year, reflecting greater underlying stability in the business. The half-year dividend remains unchanged at 6.3p per share. The stock yields 3.8%.

Fighting back

Paul Forman, appointed CEO seven months ago, says Essentra has stabilised after a period of turbulence, and is starting to win back lost credibility with his customers, but there is clearly much to do. Packaging can be a lucrative industry - Mondi and Smurfit Kappa have got it wrapped - and recent problems have been caused internal rather than external issues.

Essentra is turning into a paper tiger with its share price up more than 30% in the last six months, although trading at 18.34 times earnings it needs to show more teeth.

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Harvey Jones has no position in any 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.

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