Carclo Share Discussion Threads

[1gw] 17/11/2016 09:59

Thanks for the link pldazzle, but that's US corporates...

[1gw] 16/11/2016 17:41

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.

[rivaldo] 16/11/2016 13:51

It's extremely unfortunate that CAR's terrific trading and prospects have been overshadowed by what is really a temporary event as regards bond yields.

FYI, UK 10 Year Gilt Yields have nearly tripled since the mid August low, and are actually at the same levels as in Feb/March 16 - just before CAR's last year end, when there was no problem at all as regards distributable reserves and dividends:

12 Aug - 0.51%
14 Nov - 1.46%

It's possible that this entire issue will have largely or entirely disappeared by the finals.

Thx for the above info Boadicea.

[yump] 16/11/2016 10:14

So I wonder when any government is actually going to deal with the problem that the pension levels are dependent on the number of employees and the number of employees will continue to decrease until further notice, while corporate profits continue at the same or higher levels than they were when they had loads more employees.

The parallel implications for income tax take, which pays for the NHS etc. don't bear thinking about if taken to conclusion.

Basing lots of things on number of employees is fundamentally flawed, but its the elephant in the room.

We can't 'upskill' everybody into higher level jobs, as bit by bit they all lose their middle management positions and you won't get a job at McDonalds' because a robot will be freshly cooking your stuff.

[boadicea] 16/11/2016 09:47

I agree with Rivaldo that the forecast eps for the current year should be met with ease - or more likely exceeded imv if the pound continues below $1.30. Forward cover around $1.50 will be expiring over coming months leading also to possible upgrades for next year's forecast.

One aspect of the pension scheme that has not been commented on is the trustees asset switching over the past two years. In the year to 2014, roughly one third of the fund was in Bonds and two thirds in Equities. During fy 2015 the equities were switched to Diversified Growth Funds (DGF) which will presumably have some bond content, so the proportion in bonds arguably increased. In the fy 2016 the pure bond proportion was likewise switched which will have led to a reduction in bond exposure. This looks like the Trustees (or their advisers) playing safe and will be based on advice they received offering a limited range of options.

In a sense this makes the fund balance more opaque unless we know which DGF or DGFs are held. (A reading of the Trustees' Report to its members could clarify that.) DGF's do not have universal approval, one aspect being their relatively high charges. They have the advantage for Trustees of being professionally run and help to fulfil one of the main duties of a Trustee which is to take and follow professional advice. However, advice is not always good, still less right in retrospect, even (or particularly?) from the BoE.

The pension problem is not specific to CAR, it affects most substantial UK industrial and commercial companies with roots in or before the middle of the last century.

[rivaldo] 16/11/2016 09:03

Excellent article re the results - I've copied the interesting excerpts:



"Carclo to launch super-car lighting range

LED lighting specialist Carclo is set to launch two new lighting products for top of the range super-cars that will enable drivers to see round the corner and double the distance when on full beam. ​

Top of the range luxury cars such as Aston Martin, Lamborghini and McLaren all source their LED lighting from Ossett-based Carclo. The first product will turn on LED lights when the steering wheel turns so drivers can effectively see around the corner. The second is a laser light that can shine far further ahead when the lights are on full beam.

Carclo's chief executive Chris Malley said: "When on full beam, drivers will be able to see double the distance. So when you're driving down really dark roads you will be able to see what's ahead. "The technology is already there and now we have developed it to go into the upmarket niche area. We will launch the two new products in the next couple of years."

He was speaking as the firm ​reported a​ strong trading performance across its divisions in the first half of the financial year, with all businesses trading in line with the board's expectations.​​ ​ Group revenue ​rose 10.7​ per cent​ to £63.3​m ​in the six months to September 30​ while operating profit before exceptional items increased by 19.0 per cent to £5.6m.....

....A​nalyst ​Jon Lienard​ ​at N+1 Singer said: "Trading remains positive with momentum strong in Plastics and LED. ​"​For those willing to look past the pension and dividend issues discussed previously (or for those who think bond yields will now start to help the situation), we feel that there is an attractive investment case at these levels. We remain at Buy.​" He was referring to the decision last month to not pay shareholders their final dividend following restraints resulting from the UK’s vote to leave the European Union.​ ​ The firm​ said ​corporate bond yields had decreased materially in the UK ​following the Brexit vote. The yields are used to discount the group’s pension liability​.

Analyst Dominic Convey at Peel Hunt said: "This is a strong ​first half​ trading performance across all three divisions​.203; As anticipated, the interim results confirmed that the strong momentum within the Technical Plastics and LED Technologies division has been sustained through the first six months of the year, with ​first half pre-tax profits​ comfortably ahead of our expectation, derisking our ​full year​ forecasts. ​"​This strong growth potential, well underpinned by recent programme wins and a healthy new business pipeline, justifies a significant rerating. We are maintaining our 190p target price and reiterate our Buy recommendation.̴3;"​

[yump] 16/11/2016 08:53

queeny2

imo full of bears or bulls is usually a good time to act with anything that's subject to cyclical influence...

[amoore70] 16/11/2016 07:25

Agree with Rivaldo. But as I have said before find this share very frustrating but have continued to hold. Would be nice to see a push to 160p now.

[rivaldo] 15/11/2016 23:41

The share price move upwards today tells the true story, and the institutions who took up the recent £8m placing are evidently quite happy.

The next triennial valuation of the pension fund isn't until 31st March 2018, so CAR's pension contributions will remain fixed at the current reasonable levels for some time to come (until the year to 31st March 2019).

In the meantime much could happen as regards relaxing the rules on deficits, as has been discussed here before. And yields have recovered much of the ground lost post-Brexit already.

Given the very low P/E multiple based on 11p-12p EPS this year, plus the impressive strength in and prospects for current trading, there's very little downside in the share price, but potentially rather large upside imo.

[woodcutter] 15/11/2016 22:08

have a glance at the more recent history of RNO and the difficulties associated with their pension deficit.

woody

[queeny2] 15/11/2016 20:10

Quite a bearish bunch.

[woodcutter] 15/11/2016 19:04

Big pension deficit wiped out retained earnings and borrowings are in Euro and Dollars. Despite the genuine quality of the business the management appear to be very poor at financialy running the business. If you are waiting for a return based on the movement in yields so the pension deficit will be reduced then your a long time dead.

I'll be absolutely amazed if trumpanomics saves the day. The US Congress has consistantly opposed any further increase in debt which is currently running at 70% of GDP and trumpanomics will make it over 100% so there's no way that's going to happen imv. There'll have to be a tsunami of treasuries released to do the level of infrastructure spending trump wants to do.

yes yields have moved up recently the US 10 year treasury note yield has increased by over 60% in the last few months but it's now at the top of the downtrend resistance level and my guess is trump will get hauled in and yields will most likely settle around were they are, otherwise there'll be a big recession in the US as peoples mortgages loans etc are tied to these yields. US citizens are already saving more than in recent times so consumer spending could drop off a cliff if rates rise too fast.

Similarly in the UK inflation needs to hold for rates to rise and current yields have factored in any possibly increase imv.

great business badly managed imv.

woody

[poikka] 15/11/2016 16:56

Highly questionable results with little indication of true same exchange rate performance, other than that Technical Plastics sales ahead by £2m. As they've been so reticent about the matter, I'd avoid this share at least until the Finals.

[beeezzz] 15/11/2016 16:53

Pension liability is going to be a mill stone dragging on future expansion, they need to get more clients, plus seek out higher margin products to offset debts.

See what happens at full year...otherwise its a sell IMO.

[bigtbigt] 15/11/2016 14:50

Sorry guys - just don't feel comfortable about this ever increasing debt level and pension liability. So I've cut and run at 130p

But not complaining - 10% profit in 2 weeks is fine by me :-)

Good luck all - I'll keep watching and decide later if it looks like dipping a toe again

Short term I fear this may be going sub 100p

[rivaldo] 15/11/2016 10:02

WJ, the acquisition using the placing monies was expected to be earnings-neutral in the first 12 months post-acquisition. I suspect that with some debt reduction too, plus the very strong trading and favourable currency movements, CAR will still be able to at worst meet forecasts, and at best.....

Consensus forecasts have remained steady post-placing at around 11.2p EPS this year and 12.75p EPS next year, which suggests that analysts are similarly minded.

[queeny2] 15/11/2016 09:27

rivaldo thanks - I saw this set of results, I wanted an intelligent update of the last 12 months, perhaps some explanation as to why it was at a twelve month low.

I haven't been looking since I covered, which was a long time ago.

[wjccghcc] 15/11/2016 09:27

riv, the placing shares will dilute H2 EPS so more likely FY in line than beating at this stage.

[rivaldo] 15/11/2016 08:45

Peel Hunt have a Buy and 190p price target:



And Finncap have upgraded to Buy (with a more conservative 138p target):

[yump] 15/11/2016 08:05

As soon as Trump mentioned infrastructure, the bond market started to reverse.

Its always the same whenever charts look like they can't stop rising or falling, like the bond bull market. People think they won't change and then the president mentions big spending on infrastructure and hey-presto, the trend is reversed.

There have also been strong hints in the UK that austerity is going to be relaxed somewhat.

If you start adding a few more 'nationalistic' 'we're going to spend more on our own country' comments from other countries, the bond yield chart will look symmetrical in a few years.

[ansc] 15/11/2016 08:02

Lol, I feel a 'short' coming on!

[rivaldo] 15/11/2016 07:56

Queeny, you evidently missed my earlier post, so here it is....

Absolutely superb H1 results just out - with 5.6p EPS in H1 CAR look set to smash forecasts given that:

(1) the directors expect the company "to have a stronger second half of the financial year"
(2) CAR will benefit much more in H2 from currency fluctuations than they did in H1

If CAR make 12p-13p EPS this year they'll be on a single-digit P/E:



As for bond yields, we may find that the dividend situation and the pension deficit increase have completely reversed by the year end. This is what Paul Scott reported on his blog yesterday:

"Bond yields seem to have been an even bigger mover than equities, rising strongly. I spoke to one UK company CEO last week, who told me that their pension deficit had shrunk by a quarter in just one month (October)."

The share price really should be back at 140p and upwards as a minimum given that all 3 divisions are performing so well - and that their prospects going forward look just as good.

[queeny2] 15/11/2016 07:37

Hello everyone. Was woken up by a Carclo email update, haven't looked since I closed my short a very long time ago, surprised to see shares at 52 week low and cheekily lower than I paid. Wassup? Glanced at results which in their normally cheery style are both 'in-line with expectations' and 'strong'. The p/e must be very low, rivaldo must be baffled.How are you all?An intelligent update from eg illiswig about the last twelve months would be appreciated.X