|A good thing about CAR in recent years is that it has continued to release a Q3 trading update when most companies choose the option not to. Dates for this update have been as follows so I'd expect an update w/c 6th Feb although it could even be the week before -
22/1/14 (brought forward?)
A fine effort to reavaluate the situation,many thanks a first class effort..|
|Carclo pensions deficit and dividends.
Just to revisit my analysis from post 283 in light of Boadicea's comment about Group vs Company balance sheet.
In post 283 I said
"Retained earnings at end-September were £2.8m and a 2p dividend (for example) costs about £1.5m (73m shares). So given earnings-positive underlying business I would have thought they might already be confident enough to pay a dividend if discount rates stay at this level."
The £2.8m retained earnings figure was from the consolidated balance sheet (the only one given in the interims).
If I go back to the annual report the equivalent figure at end-March 2016 was £23.5m, while on the Company balance sheet the "Profit and loss account" showed only £7.9m, a difference of £15.6m.
If I assume that company and consolidated balance sheet suffered equally in the first half of this financial year then +£2.8m retained earnings on the consolidated bs would suggest -£12.8m on the company balance sheet at end-September (i.e. the £2.8m on the consolidated bs at end-September less the £15.6m difference between balance sheets at end-March).
So my estimate of about £10m back on retained earnings due to the move in corporate bond yields, while putting the consolidated bs "retained earnings" nicely positive would still leave the company bs negative on the "P&L account" line - by about £2.8m.
Which would mean, on those estimates, they would still need a bit more in the current quarter to be able to restart dividends. It could be that earnings from the underlying business are enough to take them over the line though given they did £3.7m profit after tax on the consolidated income statement in 1H. And that's if they can't find a way to move some of the "additional" retained earnings on the consolidated bs on to the company bs.
So perhaps the situation is not quite as positive for renewed dividends as my earlier post suggested, but it still looks credible to me that they could just about be in a position to restart dividends without any further improvement in corporate bond yields from the 31st December position.
As before - errors excepted and no advice intended.|
|GLeach, looks like you're correct - the 3k AT buy at 145p at 11.56 triggered the thread header chart to finally catch up.
EDIT - sorry, posts crossed!|
|...and there's your AT trade at 145 for your chart|
|Now up 5p to 144p mid-price...|
|Chart still incorrect again,up 3p and not reflecting in the charts here..
perhaps problems behind the scenes...but we are looking strong here all the same..
up 5p now,,onwards and upwards,value will owt..imho|
|rivaldo...i don't think it's the mid price that's charted but rather the current price shown in the monitor? if an AT trade goes through at 144 on the offer then the current price would move to 144 and that would be reflected on the chart. it's just the current price that hasn't moved and is stuck on 139
i'm not 100% on it but that's how i've always assumed it works...anyway nice to be going up|
|The current mid-price is 142.38p, up 3.375p today following buying at 142.5p - once again the thread header chart is completely incorrect.|
|Iirc, the reason for the abandonment of the declared dividend was a legal restriction on the company paying from capital as opposed to accumulated income. The 'Group' had accumulated income in the consolidated accounts but the company, which pays the dividend, did not.
An increase in the Company's distributable reserves can (from memory) arguably be accomplished by a transfer of funds to the holding company from the Group account even if the technical pension situation does not materially improve. The question rather is whether, in the present or likely future circumstances, that would be a wise move and there are arguments for either view.
On the pro payment side, there is no pressing cash situation (afaik) and there are institutional investability advantages to paying at least a nominal dividend. Against is the potential increased operational flexibility of retaining a greater cash cushion for unexpected events.
From the original RNS, we do have a clear statement of the board's intention -
"Whilst the Board is disappointed that the final dividend is now unlikely to be capable of being paid due to these legal and accounting constraints, it intends to resume the Company's progressive dividend policy once legal and accounting circumstances allow."|
|Nice to see this breaking through the 137p resistance level|
|A reinstatement of the dividend would be the catalyst for more institutional buying - and we all know what that means.|
|Looks encouraging online. At present I can only buy a maximum 12k at 141.4p, whilst I can sell 25k at 138.13p (the share price is nicely up today to around 139p despite the totally incorrect chart in the thread header).
I too am not particularly bothered about the dividend - it's the high growth and potential in the core medical and LED divisions which excite me. Especially on a P/E of only 10.
But I do believe that, especially if yields continue to solidify before the year end, there may well be a reinstatement of the year end dividend in the 31/3 results, even if it's a smaller amount simply as a statement of intent.|
'patience required methinks...'
Oh yes, I can see you are a seasoned CAR investor.
I suppose that the restarting of dividend payments could help to give the shareprice a legup but I am more concerned to see the level of debt fall and cashflow improve before the board feel pressured into paying out cash just to send a message.
As a long term investor I find dividends and steady shareprice rises to be a pleasant accompaniment on the journey - but my main reason for remaining invested in CAR is growth in the relatively short term so I'm not that concerned about the divi particularly if it conflicts with investing for growth.
I have always felt that the pension deficit was a very useful excuse and sent a more acceptable message to investors than 'sorry we need the cash right now'
Sadly (for my regular income) I'd expect a couple of years before the divi returns and that debt will be falling nicely before that point.
More patience required :-)
|1gw, thanks for the analysis and good to see you buying more CAR.
Good vibes this morning from CAR's VR315 partner Vectura:
"An important part of our news flow for 2017 remains VR315, our generic Advair® Diskus® programme partnered with Hikma. This programme remains under FDA regulatory review and we continue to work closely with our partner through this process. VR315 has a GDUFA goal date of 10 May 2017 and is one of only two generic Advair® Diskus® ANDAs publicly filed and accepted."|
|1gw, you are right that the deficit is likely to nominally go down due to a lower discount rate, but whether that will induce the board to pay a dividend is questionnable. As you say the deficit can easily get worse again (quickly)....the board would not want to be caught twice promising divs that they then find they can't afford. But just maybe the strength of the business will give them confidence and my caution will turn out to be wrong.|
|catscats, I think the "write back" as far as discount rate is concerned should be fairly automatic at the end of the year. They will get their updated discount rate by taking their usual benchmark I would think and apply it and other updated assumptions (inflation expectations, mortality assumptions) to recalculate the liability, running key assumptions past the auditors. Having done a similar exercise to update the value of the fund assets they will calculate the updated deficit and adjust the accounts accordingly. There could be some discussion in the light of what happened with the dividend this year as to whether this slavish following of corporate bond yields is really the best way of setting the discount rate given the (expected to be temporary) distortions of QE - but I think that would help not hurt the situation.
Whether a reduction in liability is sufficient to get the share price up is another question - and in itself I would tend to agree that it won't be (because we all know that in future the deficit could move the other way again). But I do think the announcement of a resumption in the dividend could have an immediate impact on the share price, particularly if it was accompanied by a statement that the board thought that the health of the business meant they would now be able to continue with a progressive dividend policy for the foreseeable future.|
|have been invested here (too) long time. hoping for more positive news at some stage, and maybe that will come from resumption of dividends. But in my (limited) experience write back on pension fund liabilities are like petrol pump prices - very quick to put up and slow to reduce. So i am not relying on that to get the price up. Business now seems stable with reaasonable prospects but margins are not stellar and debt is still IMO too high, so i doubt that the market will give this more than 10x p/e. ho hum - patience required methinks...|
|Good stuff 1gw, thank you.|
|Having said all that, I think the recovery from 2.3% to 2.7% may well be enough to allow them to restart dividends, so I've just bought some more at 137p.
In the half-year report they said the move from 3.5% to 2.3% had increased liabilities by £34m [edit: actually "contributed to" this increase - with some due to rising inflation expectations or mortality assumptions perhaps]. So simply pro-rating, a move back to 2.7% should decrease liabilities by about £11m. Net of tax, getting on for £10m back on  retained earnings I would hope. I would also hope that investment performance on the equity portfolio would at least cover liability increase due to increased inflation assumptions.
So maybe around £10m back on retained earnings due to the increase in corporate bond yields.
Retained earnings at end-September were £2.8m and a 2p dividend (for example) costs about £1.5m (73m shares). So given earnings-positive underlying business I would have thought they might already be confident enough to pay a dividend if discount rates stay at this level.
Health warning: my analysis only, to promote discussion. Certainly no advice intended. This is a complex area and I may well have made some mistakes in the above analysis.|
|Update on corporate bond yields (Carclo pension deficit).
Barnett Waddingham have today published their update on corporate bond yields, showing that the ML UK 15-yr AA corporates rate had recovered to 2.7% at year end. While better than the end-September rate (2.3%), it is still significantly below the end-March rate of 3.4%. It is also still below the end-June rate of 2.9%.
Inflation expectations have also increased over the last quarter, adding to upward pressure on pension scheme liabilities, while equity market returns should have been good given general market performance which would tend to increase the asset side of the equation.
On balance, I'm disappointed. I had hoped that the gap to the end-March'16 yield position would have closed a bit more by end-year. I now hope for further moves up by end-March'17 to increase the chances of Carclo being able to resume dividend payments.
The latest BW note is linked below and I have pasted my previous post on the subject for context.
1gw 16 Nov '16 - 17:41 - 206 of 281 0 0 Edit
I think you need to look at UK corporate bond yields rather than gilts in terms of the pension scheme discount rate issue. I noticed in the results (note 13), Carclo gave the change in discount rate:
3.5% 31st March
2.3% 30th September
In post 134 I gave the 15-yr AA ML Sterling Corporate bond yields quoted by Barnett-Waddingham as possible indicative discount rates:
3.37% 31st March
2.29% 30th September
So it looks like this may well be a reasonable proxy for the Carclo scheme discount rates.
Unfortunately I haven't been able to track down a good source of this rate (i.e. UK 15-yr ML sterling corp) other than the Barnett Waddingham publications - does anyone else have one?
In any event, the next BW publication should be out in early January giving the rate at 31st December. That should give us an indication of where the discount rate is likely to be and therefore what the chances are of getting a material reversal of the recent hit.|
sorry,wrong information I printed,another shares performance,,from anybody who read my previous piece..
I mean the piece I typed ,not your last posted information which looks good,,any thanks to you.|
|Continuing to creep up slowly, with buying at 137.56p today.
Every independent analyst says Buy now - forecasts for the year starting soon put CAR on a near single-figure P/E and a very good value PEG of only 0.8:
Date Rec Pre-tax (£) EPS (p) Pre-tax (£) EPS (p)
N+1 Singer 06-01-17 BUY 10.60 11.13 12.60 12.45
FinnCap 05-01-17 BUY 10.70 11.30 12.60 12.80
Edison 05-01-17 None 10.66 11.60 12.75 13.10
Peel Hunt 09-12-16 BUY 10.70 11.73 12.97 13.34|