Carclo Share Discussion Threads

[yump] 08/12/2017 16:32

I think the market (whatever 'the market' means) is very nervous about Brexit with companies that don't post squeaky clean optimistic updates, especially any smaller companies with international sales. I wonder how many managements actually have forecast charts for their sales in a range that is now + or - a significant %, because they really have no idea how things will work out ...

At the last update CAR had Technical Plastics revenue delayed into second half.
That's enough to put the wind up folk I think in the current climate.

Coming out of recession, on the climb, it would probably have made no difference.

[meijiman] 08/12/2017 16:17

No faith in the management here.

[amoore70] 08/12/2017 15:59

Seriously had enough of this. share price back in the 120's, why I have no idea. Even with positive news I don't think the share price will improve.

[heeley3] 08/12/2017 15:42

I cannot see a reason for the share price weakness here. Is something going on?

[rivaldo] 03/12/2017 07:52

Trump's tax cuts have passed the Senate and are almost certain to be enacted quickly now, cutting corporate taxes from 35% to 20%.

Assuming CAR's North American operating profits arise geographically in similar proportions to revenues, then CAR's tax costs would fall by some £500,000.

Quite a benefit to CAR:

[rivaldo] 21/11/2017 08:54

For the record, consensus forecasts are now 12.66p EPS for this year from 5 analysts, with 15.22p forecast for next year. I've adjusted the header post accordingly.

The latest Equity Development forecasts of 17.7p EPS to March'20, rising to 20p EPS and then 22.2p EPS are also now shown.

[rivaldo] 16/11/2017 10:31

That's encouraging rhomboid. It would seem there's healthy demand out there if you're being offered above the mid-price (no-one would be buying multiples of the NMS purely on the basis of an IC Buy tip).

In addition to the IC tip, I notice that Growth Company Investor have also now recommended CAR. It's subscriber-only unfortunately:



"Recommendations

14 Nov 2017

Carclo looking promising as share price rises"

[rhomboid] 16/11/2017 09:04

Coincidence I’m sure but I was being bid over mid price yesterday on a significant multiple of NMS , I wouldn’t like to suggest anyone is front running IC tips but it was v odd. I wasn’t looking to sell but testing liquidity

[rivaldo] 16/11/2017 08:55

CAR have been tipped in the IC - hopefully it'll be in tomorrow's print edition too:

"Tip Update: Buy at 145p
By Mark Robinson

Half-year figures reaffirm that the resolution of operational issues at Carclo’s (CAR) technical plastics division is under way. Although underlying profit fell on the 2016 comparative, and revenue flatlined once currency and acquisition effects are factored in, the division’s operating margins are now expected to “improve significantly”. Following the successful expansion of a production facility in India, and expectations of a higher proportion of design and tooling profits recognised in the second half, that optimism appears well grounded.

A 16 per cent rise in underlying profitability in the LED technologies business partially offset the difficulties within technical plastics and the group’s smaller aerospace arm, but underlying earnings were still constrained. The LED division is also set fair for the remainder of 2018 as several pre-development programmes are expected to translate into project awards over the second half. “Design, development and sub-contract tooling revenues” were ahead of management expectations, while the ability to meet the build up in orders has been met by increased warehousing capacity in Buckingham.

Peel Hunt forecasts adjusted pre-tax profit of £12.7m for the March 2018 year-end, leading to EPS of 13p, against £11m and 12.1p in 2017.

These developments were largely foreshadowed in September’s trading update, so shareholders will now concentrate on the extent to which the design and tooling profits will be second-half weighted. Net debt is up, a reflection of recent capital commitments, but it remains well within banking covenants. At 145p, the shares are slightly up on our original call (137p, 30 Apr 2015) but trade below the peer average at an undemanding 11 times forecast earnings.

Buy."

[rivaldo] 14/11/2017 23:02

Tipped:



"2 growth stocks I’d buy and hold until 2020 or beyond

G A Chester | Tuesday, 14th November, 2017

Shares of Carclo (LSE: CAR) are trading 3% higher today at 145p after the global manufacturing group reported “solid first-half trading overall” and said: “The Board anticipates full-year trading will be in line with its expectations and the Group remains on track to grow substantially over the medium term.”

Today’s results give me confidence that this FTSE SmallCap firm, which has a market cap of £106m, is a growth stock I’d be happy to buy and hold until 2020 or beyond. And I feel the same about a £205m-cap stock from the same index, which I’ll come on to shortly.

Down to business

Carclo’s largest division, Technical Plastics (about 60% of group revenues), supplies fine-tolerance, injection-moulded plastic components, mainly for medical products. The division’s first-half operating profit fell 6%. Management said this was due to some key new programmes being delayed into the second half and some operational issues that have now been largely resolved.

The lower profit from Technical Plastics was offset by a 16% increase at its other principal division, LED Technologies. This business, which designs and supplies specialised injection-moulded lighting systems to the luxury and supercar industry, accounts for 35% of group revenue.

The company’s balance sheet remains reasonable after an anticipated rise in net debt to £29.6m from £26m. And there was an encouraging fall in the pension deficit from a previously elevated level.

Nice growth stock on cheap valuation

All three of Carclo’s divisions (the third is a small business in aerospace) are set to have a stronger second half. Forecast earnings per share (EPS) of 12.75p for the full-year to 31 March put the company on a price-to-earnings (P/E) ratio of 11.4. This falls to just 9.5 for fiscal 2019 on the back of a forecast EPS increase to 15.3p, as that substantial medium-term profit growth the company referred to kicks in.

The company has been investing in its manufacturing assets, increasing capacity and efficiency, which should contribute to top-line growth (higher volumes) and bottom-line growth (higher profit margins). Operating in attractive markets and well diversified geographically, with 70% of revenues coming from outside the UK, I see Carclo as a nice growth stock on a cheap valuation."

[queeny2] 14/11/2017 12:04

Fair comment yumps.

[yump] 14/11/2017 11:49

Lot of effort and interest there... I really don't know how or why folk post such detailed stuff when not interested.

Must have made a mint and nothing to do.

[queeny2] 14/11/2017 11:19

Illis genuine thank you for that explanation. Two weeks at Harrods small electrical and minimum wage farm labouring are my only experiences of the real world really. Friend used to be at GEC Marconi then Hotpoint (I think) also GEC iirc, then on to greater industrial things, he knows this stuff. Back to CAR. Questions for you and your industrial experience. Their revealing presentation of a while ago, maybe a year, when the measure of how much a handicap being sub-scale in CTP really is was apparent - that's stayed with me. It's not far from a commodity business? Admittedly with stickier customers, but I assume each decent customer would multi-source for supply chain security? They build capacity on spec, then hope to utilise it, rather than in response to demand programmes? Margins firmly capped at near-commodity levels, not as bad as packaging but not far away either? No real sales or marketing budget, no usp other than being reliable nice chaps, limited steady contract gains from existing customers visible, hard to win new customers away from existing suppliers except on natural churn and/or price?In the end their growth will approximate sector growth, and that's it?Stream of consciousness there off the back of the general fate of sub critical mass punters. Its why they have low ratings.

[kazoom] 14/11/2017 10:59

"Personally I don't understand selling CAR on its rating to buy IQE on its rating.
My money went from IQE when it got to a 'promised land' rating into CAR on its 'having to wait on a modest rating for something to happen'."

Absolutely understand that PoV yump - I've made similar calls to that in the past (sometimes rightly sometimes wrongly).

Personally (whilst I'm suggesting in anyway that the businesses are comparable) I think both stocks have the potential to double or treble in the next few years (without being on astronomical valuations).

It just seems to me that IQE look more likely from here and more importantly if and/when CAR begin to show something that makes it look more likely - I'd expect (rightly or wrongly) to be able to get back in with about 20-50% of the current price, I don't believe the same for IQE.

I guess you can either believe that growth is possible or not - is it as simple as that ?

I think it is slightly more complex. I believe it is "possible", but I suspect there won't be much upside until it looks "probable" or "highly probable".

Not in anyway trying to talk Carclo as an investment (it looks good value) and if it roars away whilst I'm stuck on the sidelines the so be it. I'm just deploying my patience in a different way these days!

[yump] 14/11/2017 10:35

Seems to me there's a lot of hair-splitting going on.

Personally I don't understand selling CAR on its rating to buy IQE on its rating.
My money went from IQE when it got to a 'promised land' rating into CAR on its 'having to wait on a modest rating for something to happen'.

In my experience, sitting on stocks on reasonable p/e's (10-15 so not tanked stocks) that are not currently growing, but have growth prospects works quite well.

PS if CAR only do 12p the rating will be about 12 at this price.

I guess you can either believe that growth is possible or not - is it as simple as that ?

[rivaldo] 14/11/2017 10:34

New report from Equity Development - they increase their SOTP valuation to 206p (from 200p).

The caveat here is that the Wipac contracts are awarded as promised in H2. Assuming no material slip-ups, then CAR still looks cheap as chips to me given the potential and global leadership position in two high-growth sectors:



"SOTP valuation moves up to 206p/share

Factoring all this in, our sum-of-the-parts valuation rises to 206p/share (from 200p) – derived from using FY21 EV/EBIT multiples of 14x for Technical Plastics (64% FY17 sales), 12.2x LED Tech (31%) and 10x Aerospace (5%), discounted back at 12%, and adjusted for central overheads and the above balance sheet movements"

"Stock appears undervalued vs most metrics

Likewise in relative terms, we believe the stock rates as good value, trading on EV/EBIT and PER and multiples of 9.3x and 10.9x respectively vs peer averages of >16x and >20x (as below)."

"Lastly, don’t forget that the vast majority of Carclo’s turnover is tied to long-cycle deliveries on OEM platforms with typical life-spans of between 5-20 years. Hence providing good overall visibility and earnings quality."

[illiswilgig] 14/11/2017 10:22

Kazoom - well Said.

Having looked at it this morning, I think they are running hard to meet the FY figures, so risk is to the downside with little probability of significant outpeformance, as LED is already outperforming, CTP has a lot of catching up to do and Engineering is never going to outperform.

Please do post on your impressions from the presentation - it will be much appreciated,

Right - thats more time than I wanted to spend on CAR this morning, time to turn my attention to the next one,

cheers

Illis

[kazoom] 14/11/2017 10:15

FWIW I sold my small remaining position for a loss this morning (recycled the cash into IQE).

It is not that I don't think at some stage this could become a "superstock" , just that we seem to be no nearer that event that when this stock first came to my attention.

Over time it will probably be a good investment from this point, but I just see no urgency to be holding this at the moment, I cannot see any reason for the price to go anywhere in the near term.

If they do actually hit the full year number then that might get my interested again (although I'm not even sure that would "light the blue touch paper") - It might well be that I would have to pay more to "get back in" at that stage, but I just think there are better opportunities for capital appreciation in the meantime.

Will still attend the presentation this afternoon, to find out why I might be wrong!

[illiswilgig] 14/11/2017 10:10

Queeny,

good to hear from you!

I forgot to be clear. In my old wet-behind-the-ears GEC days, direct labour was the few engineers who could actually book to project codes (which were normally much more closely guarded secrets than the supposedly secret projects they worked upon). Everyone else booked to indirect codes, ie admin, security, mowing the lawns outside the directors office, the tea trolley, that kind of thing. OK there to be serious there were also goods in, buyers, materials, etc etc who were indirect but did actually support the work.

The indirect labour is always there so the profitability of the operation is totally geared to utilisation of the direct labour - which is fine if it's constant and predictable. GEC-Marconi used to use a lot of contract engineers to try to reduce direct staff when they could not be utilised and boost staff when they needed extra effort. But to be fair its not an easy game to get right especially if every other company is also playing the same game. sounds like something went wrong this time.

cheers

Illis

[illiswilgig] 14/11/2017 10:00

Queeny,

Hello!

Don't understand? I expect it's quite simple. Direct Labour = not indirect labour.

ie somebody failed (forgot if you are not the forgiving type) to hire some employees. Not just cleaners mind you, as I expect they are indirect labour, nor managers either (shame) but unfortunately the ones needed to run the moulding machines. Ooops.

Very Carclo that. Who'd have imagined somebody left that banana skin right next to that moulding machine and all our machine operators slipped on it and hurt their backs?????? Just imagining what it will say in the FY results :-)

I understand what you mean about raw material prices not being an operational issue - but material cost does affect the operating profit so in that sense they are not unconnected to operations either.

Maybe it was an unforeseen rise in the price of banana skins?

If the moulding machines are not running because the operators have hurt their backs on a banana skin or somebody forgot to hire them - They certainly won't be producing the goods on time or early? then a programme delay will result?

See. It's not so hard to understand :-) Whether it's reasonable, acceptable or forgivable is an entirely different matter?

Perhaps my cynicism (based upon my project management days in industry) has jumped to the wrong conclusions & I will be very interested to hear what you learn from the presentation,

cheers

[queeny2] 14/11/2017 09:58

Worth mentioning that they restate that the operational issues are 'largely' resolved, I was waiting to see if they had completely resolved since the trading update when they were also largely resolved iirc.

[queeny2] 14/11/2017 09:56

Nice one illis.

[queeny2] 14/11/2017 09:54

Very very meh. Too much about 'the medium term'. Disappointing I think overall. Nothing especially wrong, except direct labour (what is indirect labour?) and clear disappointment with non medical sales progress.I think H2 will be at or below consensus, nothing to hope for in next few months would be my reading. Make calendar entry to check price in three months and five months.