Essentra’s (ESNT) struggling oil and gas-focused Pipe Protection Technology (PPT) division is not for sale – and if it was chief executive Colin Day says he would be first in line to buy it.
A steep decline in oil and gas drilling activity in 2015 led to a 65% slump in sales at the unit, which sells specialist seals used to protect drill pipes from damage and corrosion.
But Day, speaking alongside full-year results, remains enthusiastic on its longer term prospects.
‘PPT is a great business,’ Day says.
‘If Essentra was going to sell it I would be the first buyer in the queue. All you need is one good year and revenue will be back up around $80 million (£56 million) with profit in the region of $30 million.
‘It is not that this thing is never coming back – we still need oil and gas and there are no alternative technologies out there which can replace it completely.
‘When drilling starts again you need to buy pipes and protector caps. And when that happens PPT is making an awful lot of money again.’
Recovery in oil and gas rig counts, expected to kick in if oil hits $60 a barrel, could see demand return for PPT’s products, Day argues, though there would be a three-to-four month lag.
Former Reckitt Benckiser (RB.) finance offer Day admits 2016 will be another tough year for the unit but, importantly, it is not expected to be a further drag on sales or earnings growth.
PPT’s sales decline shaved four percentage points from Essentra’s reported organic sales growth of 1% in 2015, down from 9% a year earlier.
Growth in Essentra’s larger Packaging, Distribution and Filters businesses offset the oil and gas headwinds.
Overall revenue growth was 27%, driven by the late 2014 £285 million purchase of health care-focused Clondalkin Specialist Packaging from private equity firm Warburg Pincus.
Underlying earnings per share (EPS), management’s preferred measure of profitability, was 13% higher at 47.6p.
Shares in Essentra gained 6.7% to 796p in morning trading.