Carclo Share Discussion Threads

[rivaldo] 23/11/2016 07:43

VEC's interims this morning (they're CAR's partner re VR315) show it's progressing well - this is a generic version of the blockbuster Advair and is forecast to be a big winner:

"VR315 US, (fluticasone proprionate/salmeterol), our partnered programme with Hikma for a generic version of Advair® Diskus® for the treatment of asthma and COPD in adolescents and adults for the US. In April 2016, the US FDA accepted an ANDA filing made by Hikma and Vectura recognised a milestone receipt of $10 million. The FDA has provided Hikma with a GDUFA goal date of 10 May 2017. Vectura will receive $11 million on approval of the file plus a royalty on net sales of VR315 in the US.

Our partner Hikma, is currently one of only two companies to have publicly filed and had accepted a generic ANDA filing for Advair® Diskus®. Both companies' applications have been accepted and are in a FDA regulatory review process."

[queeny2] 22/11/2016 14:27

hey illis!

'the other one that I've already forgotten' - exactly ditto, I simply can't remember it even now. Point-of-sale diagnostics or summat.

I tried to approach these results with interest, and a willingness to be long CAR for the first time ever, but but but I lost interest.

If I knew what bond yields would do I wouldn't be here, so all I can say is that a pension fund deficit plus debt that approaches the market cap certainly provides some leverage, up and down. I wouldn't fancy a banana skin right now.

[illiswilgig] 22/11/2016 13:51

Hello Queeny,

good to *see you* on the board. I was away when all the excitement happened and missed it all.

At first glance the H1 results look the typical curates egg. Easy to condemn the management for slipping on yet another banana skin, though in truth the pension deficit is not exactly news and I have expressed concerns before.

The current state of bond yields is/was extreme. But is it the new normal? To assume that the pension deficit is real would require bond yields to remain at this extreme level and all the pensioners to meet the projected longevity.

In an alternate view the management might be congratulated for managing to thread the company through the eye of the CIT and Pension needles and avoiding rescue rights issues and the like.

In view of CAR's current poor cashflow which stems from the high level of capex, cancelling of the dividend can be seen as a good move in the short term? Painful though it is for the shareholders.

That's if you believe that all the cash being invested in CTP and LED will lead to a good return. Though to be fair all of the investment so far in these divisions appears to be earning a good return - the spectre of CIT and the other one that I've already forgotten does tend to loom large in the memory.

It's on my list to have a closer look at the results but I'm not sure that I will learn much from the tea-leaves - pretty much everything to play for going forwards once the capex is converted into cashflow and above all to remember that this is CAR we are talking about!

Enough Waffle for now,

cheers

Disclosure - I am very long CAR and bought a few more at recent lows.

[abergele] 21/11/2016 17:27

Well we are through the 9 and 13 dma's,lets hope even further tomorrow,,,gla

[rivaldo] 21/11/2016 10:00

Here's the H1 investor presentation:



CAR achieved 5.6p EPS in H1 alone, and are well on track to meet and (imo) likely beat expectations of 11.2p EPS. And it looks like the two core CTP and LED divisions will have an even better H2 - backed up by bigger gains on currency movements:

"Outlook

• The Group has enjoyed a strong first half trading performance with all divisions
performing well and showing solid progress over the comparative period last year

• In particular, our strategy to invest in increased capacity in our Technical Plastics division is continuing to facilitate strong growth in revenues which is resulting in good margin appreciation. The exciting acquisition of Precision Tool & Die provides further capabilities and opportunities for this division and its customer base has been enthusiastic about the combination of our businesses leading to an enhanced offering

• In LED Technologies, our Wipac luxury and supercar lighting business has continued to perform well, benefiting from good product demand and its continuing ability to win new customer programmes and it is expected to deliver significant growth into the future

• The board confirms that the Group is trading in line with its expectations for the full year and expects the Group to have a stronger second half of the financial year, benefiting additionally from the anticipated contribution from the Precision Tool & Die acquisition"

[queeny2] 18/11/2016 13:13

I seem to have missed all this year's news, more or less up to speed now. I can see why people have been avoiding.

[yump] 18/11/2016 10:31

Given the history of CAR as a failed high growth possibility, therefore converting it into a possible modest growth possibility, I think the dividend issue was a big deal as it was at least giving some return and it follows on directly from the pension problem.

[queeny2] 18/11/2016 10:05

oh I missed the dividend fiasco, will go and read properly before commenting again.

[1gw] 18/11/2016 09:59

pldazzle - those are UK corporates, but perhaps rather shorter than 15-yr duration looking at the yields (or else higher rating than AA). I have looked quite hard to find the ML or Iboxx indices but in any event I am prepared to wait for the next BW update to see the snapshot at 31st December.

The point is just that on this particular issue (pension scheme discount rate) it looks to me like the wind is blowing in the right direction for Carclo and there's a reasonable chance (given actual reflationary policy by Trump to follow the rhetoric and maybe also some modest reflation by Hammond, or even just a borrowing binge by Trump) that by Carclo's year end the problem will have reversed.

In terms of whether all Carclo's lowly market valuation is down to the pension fund, I think not. But I think the fiasco over the dividend was maybe seen as just the latest in a string of mis-steps by the company which has undermined confidence in the management to follow through on what looks like a promising operational position. So perhaps a "surprise" reverse in the pension position might be seen as indicative of a more general turnaround in the company's fortunes.

[rivaldo] 18/11/2016 08:23

Good to see a cluster of director buys just announced - 67,000 shares, or around £80,000 between them:



Particularly encouraging to see the FD buying the most, around £32,000's worth at 120p.

[pldazzle] 17/11/2016 21:52

Apologies to lgw, and to everyone, for wrong link. Try this one:

[queeny2] 17/11/2016 16:38

thanks all.

yump - indeed.

Over many decades worries about pension funds have come and gone, I find it hard to figure that this p/e of what 10? is all based on pension fund concerns. I've looked at companies I thought were in shocking state because of the pension fund deficits and suddenly next year no-one mentions it.

I prob need to read back what the company have said last three or four results and presentations. If I have time.

For the first time ever I'm relaxed about the operations, having been (correctly) nihilist about touch screens and medical breakthroughs and (incorrectly?) more bearish than most on CTP margins and (correctly?) sceptical about what p/e CTP should be on.

I shall contemplate, but for the first time ever in many years I'm chilled about the operational downside. Pension fund and debt maybe are worries.

[boadicea] 17/11/2016 16:02

1gw - Perhaps just as important is the fact that the scheme assets are up this half year. What they are expected to achieve in terms of satisfying pension requirements is down on the basis of a forward projection assumption which has changed and will continue to do so. It is supposed to be related to the current cost of locking in a matched provision which may just imply that now is not a good time to do so! However, those are the rules for valuation.

It is of course ironic that a fall in the current asset value can correspond with an improvement in the funding ratio as, on a forward projection, an increase in yields can outweigh any immediate capital loss in a bond holding that is being progressively accumulated from a steady input of contributions plus reinvestment of dividends.

The problem with any such forward projection is that it is like shining a headlight down a winding road - not very illuminating of what you need to see. Carclo should understand this problem!

[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.