Carclo Share Discussion Threads

[bigtbigt] 14/9/2016 17:29

told ya!
But I'm holding fire for 120p, whereupon the risk/reward balance will be favourable, IMO

[bigtbigt] 13/9/2016 11:41

illiswilgig - you'll get another chance, just wait a few days!

[illiswilgig] 09/9/2016 09:22

Hmm. Shame. Bounced just before I pressed the buy button! Happy to wait patiently for anothyer opportunity or not as the case might be.

cheers

[rivaldo] 09/9/2016 08:29

...and up again, with buying at 140p now.

[rivaldo] 08/9/2016 13:34

Pushing nicely upwards now with buying at 136p.

[rivaldo] 07/9/2016 12:31

Yep, bouncing again today.

The broker forecasts remain at consensus:

this year : 11.1p EPS
next year : 12.7p EPS

[andrewbaker] 06/9/2016 12:20

... and as regards Carclo, it is now probably oversold, so it's good to see the price coming back some.

[andrewbaker] 06/9/2016 12:19

boadicea,

Thanks to both government interference, supposedly 'simplifying' pensions whilst actually making them fiendishly complicated and almost impossible to advise on long or even longer term as a result - not least because of draconian and imperfect compliance and regulatory scrutiny, plus the possibility of people complaining about advice further down the line because they don't like the outcome, even though at the time given it was the best advice available - the whole area, defined benefit and money purchase, is a minefield for all.

Concerning insurance company buyouts, they can be funded in some cases such that the liability taken off of the scheme in question is greater than the loss of future benefits from the cost of selling out.

It's highly unlikely that the calculated liabilities will in fact accrue at the level stated, unless we are in a new situation where interest rates will stay low for the next 30 to 40 years. Also, there will be a change to how the liability calculations are made, else many businesses will go under, dragged down by their pension liabilities. Already British Airways (as was) is a pension scheme with an airline attached, as is BT a 'phone company attachment to its pension scheme, rather than vice versa.

We are now also in a situation where it is arguably best advice in some cases to advise someone to take the offered transfer value from their defined benefit pension and invest it elsewhere for a potentially greater pension benefit. Some pension funds are almost bribing people to do this by offering humongous transfer values. With annuities for a 65 year old man offering a level return that takes 22 just to return the initial capital, and 32 years in the case of a 3% escalation rate (which takes 24 years for the initial pension to double), then there will be cases where it is better to take the money and invest it, and enjoy a higher pension.

Take the simple case of £100,000 pension pot (either from a personal pension or a transfer value from a defined benefit scheme) that currently will buy a level annuity of £4,528 per annum for life. If one has a reasonable belief that their life expectancy will be less than say, 95 years (due to ill health or other factors), then investing the money expecting an average return of 5% and an average inflation rate of 3%, would enable that person to draw a level sum of £6,360 per annum from the fund before it ran down to zero at age 95, a 40% higher pension than the annuity. For someone with other income and assets, including a state pension, perhaps attendance allowance - due to ill health - that could make sense. The complexity is great, and one example doesn't do justice to all the options, risks, potential rewards, and other factors to be considered; but just taking the pension without even looking at alternatives may be the best move for the most risk averse healthy people only. And pension schemes will need to consider their alternatives also if they are to successfully provide the promised pensions to their members.

It isn't going to be easy ...

[rivaldo] 06/9/2016 10:49

Nice 35,000 buy at 129p, and a good mark up.

[boadicea] 05/9/2016 16:27

AndrewBaker - I think you are being totally unrealistic in some of your pension comments above. The cost of "selling out to an insurer" to provide the guaranteed db pension is invariably significantly more than the current actuarial valuation of liability - precisely because the insurer wants a risk margin well above an actuarial valuation which was based on a best view with no risk premium added. In addition, the cost has to be paid up front and not paid down over a period of time as in a pension funding recovery plan.
I accept there are currently more attractive investments than bonds which could plummet on a minor mood change. Unfortunately, only bonds have the fixed redemption dates and values required to fulfil a guarantee.
And since the db pension liability problem has been building steadily (in general terms, not specific to CAR) over 20 years and most severely since 2008 it is dangerous to assume that it will improve over the next two or three. It could just as easily get worse!

There is, of course, no sense in allowing legacy pension commitments to bankrupt large parts of British industry and a different way may have to be found of refinancing them. The question of moral hazard is limited by the fact that outside the tax-payer funded public sector virtually all such schemes are now closed ended commitments.

[andrewbaker] 05/9/2016 13:14

Salpara111, I was going to say 'next few hours' but it will have been filled already! A good buy, IMHO.

[andrewbaker] 05/9/2016 13:12

This is a time to buy or accumulate shares in a very good business in a very good growth area. Pension deficits matter, but they are not realistically calculated, especially as rates on gilts are so low right now. The rates used will not persist, and even if they did, there are both ways to grow pension assets that don't require so much fixed interest holdings, plus ways to reduce liabilities, such as offering enhanced transfer values or selling out to an insurer who will take the risk. Also, these deficits are not numbers written in stone, but are moveable feasts; and it is likely that new rules will soon be announced that will permit a more generous evaluation, such that deficits are cut even allowing for existing pension fund values and future liabilities. Math is exact, but the formulae used to do the math can and will be changed.

(As an aside, I would still look to buy worthwhile financial companies with pension deficits, as they will be well able to deal with matters, and will still be able to pay decent dividends: eg L&G, Aviva, Barclays, all either held or on watch by me.)

[salpara111] 05/9/2016 13:09

Set a limit order for 123p so will just have to wait and see if it gets filled in the next few weeks.

[rivaldo] 02/9/2016 12:21

The AGM statement just out notes that a further half year trading update will be issued on 10th October. It should be good based on this week's trading news:



Pld, CAR have loads of headroom on both facilities and covenants, and have extremely healthy cash flows from blue chip customers. The dividend saving will further improve matters. And to repeat, CAR's pension contributions are fixed and won't change for almost 3 years. This is a long time away, by which time either bond yields will likely have much improved, or the authorities will have had to come up with solutions to an issue which will affect much of British industry, probably by changing fundamental calculation assumptions which would negate any need for vast changes in contributions based on one-off/temporary fluctuations in relevant yields.

[pldazzle] 01/9/2016 17:32

riv

Granted, PH say no change in PF payments for almost three years ... but my point was that, if CAR turn somersaults now just for the purpose of keeping up dividend payments, they could find themselves strapped for cash when the time does come to make additional pension contributions, even if that's three years away. Remember the foolish virgins? As you suggest, of course, it may be that negative or 0% yields will be a thing of the past by then - but who can tell.

Your dog's breakfast idea is interesting, but I doubt if it's a runner. It would tread right on Mr Carney's toes.

[yump] 01/9/2016 15:10

Would have thought that Brexit would have caused a loss of some confidence in bonds and therefore an increase in yield, as bond prices dropped. Unless all the other bonds in the EU have even less confidence behind them - presumably as those governments haven't control over the Euro as we have over Sterling.

So do the pension funds need actually need the government to make some sort of a dogs breakfast, so that bonds become less popular, so the price drops, so the yield rises ?

[9degrees] 01/9/2016 10:57

The pension deficit has always been and issue for Carclo.Don't blame the directors - they declared the dividend in good faith and then company and pension law took over as the bond yields dropped . I am sure they are as disappointed as the rest of us . Their hands are tied for the moment .
However good trading news so onwards and upwards- they are working hard on our behalf

[9degrees] 01/9/2016 10:48

Rivaldo agree entirely . Presumably when bond yields start to increase then the pwnsion fund could find itself overfunded and then Carclo could have a pension holiday.
Final salary schemes are a throwback from the past and should never have happened . They may have been right at the time .
The whole system of valuing FS pension schemes needs an
overhaul. Presumably two different actuaries could give different opinions.
See lead article in todays Times business section

[rivaldo] 01/9/2016 10:17

Pldazzle, as Peel Hunt say, there will be no change in CAR's pension fund payments for almost 3 years!

In the meantime, it's pointless to overreact to figures which are completely hypothetical. In 2-3 years' time, non-one knows where bond yields will be. For one thing, it would seem that right now we are at or near the low point - in 2-3 years' time yields may be back at where they were or even better.

CAR are fine as regards cash/working capital, and indeed the divi news will improve matters. I for one certainly wasn't invested here for the divi, but for the growth, and there won't be many if any income funds invested here.

CAR are likely to report extremely impressive numbers for H1 and indeed for the year to March'17. This, and reflection upon the relative non-issue of the pension fund for the next 2-3 years, may help the share price recover from imo an overdone beating.

[amoore70] 01/9/2016 08:30

gleach23
31 Aug '16 - 21:30 - 90 of 91 0 0

Always seems to be some issue or other here - probably my most frustrating share of the last 2 or 3 years.

Anyone else bemused why they issued this statement the day before the AGM?

I agree, this share really hacks me off. Every time I think there is some hope of getting my money back it is dashed. Time to cut my losses with this one now.

[boadicea] 31/8/2016 21:52

In addition to the explanation given by pldazzle there is often a further
catch in the pension provision caused by a guaranteed rate of annual
increment in payment - typically 3% minimum, or the rate of inflation
if higher up to a maximum of (typically) 5%.
I think similar terms apply to CAR db pensioners which would mean the forward
inflation assumption is at 3% and cannot be reduced even if RPI inflation
falls to zero.
One large pension scheme has recently offered its pensioners a cash lump
sum to buy out the 3% minimum guarantee. I don't know how many took up
the offer. We probably wouldn't know if CAR pension trustees have made a
similar offer (unless a CAR pensioner chooses to disclose.)

There are a lot of mid-late 20th century chickens coming home to roost
and their perch is breaking under the strain.

[gleach23] 31/8/2016 21:30

Always seems to be some issue or other here - probably my most frustrating share of the last 2 or 3 years.

Anyone else bemused why they issued this statement the day before the AGM?

[pldazzle] 31/8/2016 21:04

bigT - afaik, neither of the above: it's neither actual bonds held nor future bonds not yet purchased, but a paper entry. As I understand it, what happens is this. Assume a PF with assets of £100m. It calculates that, over time, it will have to pay out pensioners to the tune of, say, £130m. But that's in tomorrow's money. To convert it into today's money, they need to discount the £130m by some factor. A major element in the discounting rate is bond yields.

Suppose these stand at 1%, and that this brings down the discounted present value of the liabilities from £130m to say £110m, i.e. there's a pension deficit of (£110m - £100m) = £10m.

But now, suppose bond yields reduce from 1% to 0%. That will make the present value of the liabilities rise sharply. Perhaps to £120m - which would double the deficit to £20m. What assets the PF holds, or what assets it plans to buy, is fairly immaterial.

I'm happy to be corrected by any actuaries present!

rivaldo - Whether or not it's technically possible for the BOD to do some kind of exercise that would regenerate a positive P&L balance on the parent company balance sheet, isn't there also the separate point that an increased pension flow deficit will eventually need additional funding, so that group cash flow will be that much tighter and paying out dividends will be harder to afford? I appreciate that Peel Hunt say it's still a couple of years before the problem has to be faced, but I have to say I don't find that argument all that relevant or convincing. I'm still a holder, but less cheerful than I was. Would value your thoughts.

[hays1] 31/8/2016 18:55

No problem, value investors should be buying shares on the cheap tomorrow.