Carclo Share Discussion Threads

[wigwammer] 06/2/2020 11:04

Baner - in fairness I take reds point about growth. Maintenance spend in line with depreciation will keep the business ticking over, but growth will be harder to come by. But as I previously suggest, if £5m or 7p a share is being moved into the coffers of equity holders each year, that's - very decent return from a (now) sub 10p share price base.

[reddevils1] 06/2/2020 09:12

Agree that the value of the business and the pension deficit could both be higher or lower.

The only solution here right now is for the pension trustees to keep the business alive. They should allow the medical business the cash it needs to put it onto a solid growth and margin trajectory and then have management auction it to the highest bidder.

And all central/Un-allocated costs in the company need to be cut to the bone......

[baner] 06/2/2020 08:59

reddev

you forgot the "D" as in ebiDta - there is towards £4.5m of cash flow coming from the depreciation component in the ebiDta that you should add to your numbers. that provides much better room for growth. and you are likely to be far too cautious on EBIT assumptions too.

[beeezzz] 05/2/2020 21:16

Is it a buying opportunity.....?

[valuschmalu] 05/2/2020 18:52

I think £56mn EV is harsh. 6x EBITDA feels more reasonable and after factoring in led business sales proceeds results in some if not v much equity value.

The point remains though that it is v much all in the balance because of the pension situation. In my view you need to take a longer term view on the pension and look through the impact of current low rates. Unfortunately trustees will be terrified of the deficit given the sponsors rubbish operating performance. But if you take a step back, interestingly over past 7 years they have paid out £70mn plus in benefits and pension scheme assets have gone up by £16mn over the same period. I back of the envelope calculated that 3.5mn contributions with 3.5% scheme asset growth rate eliminated deficit in 15 years. Lots of assumptions underpinning that mind including £80mn technicals provision liability which is a total guestimate on my part.

[wigwammer] 05/2/2020 16:25

Another fact is - it isn't being wound up today... and if they can repay £5m to trustees/bond holders per annum, and the enterprise value stays constant, that's £5m that moves from the liability pot into equity holders hands each year. With 74m shares, that's worth about 7 pence a year. With a share price of 10p, I suspect most people would be quite happy with that level of return pa, growth or no growth :)

[reddevils1] 05/2/2020 13:34

This business will make £7m of operating profit - reason the margin won't go up is that it has £110m of sales now across 11 factories. Thats madness - think of all that duplicated fixed overhead and inefficiency.

Take off interest and bank fees of say £1.5m; tax of £1.1m; pension fund contribution of £3m - and that leaves a couple of million to spare for working capital and investment - so don't expect any growth.

This is an 8x EBIT business - so £56m of value. The debt and the pension is £78m. So if this was sold and wound-up today - the bank and the pensioners would get 70p in the pound.

Those are the facts straight from the interim results.

What the pension fund should do is allow the company to freeze the contributions for 3 years - and try and make the underlying assets worth something over that period........

Otherwise this will slide sideways and just wither......

[steve pmax] 04/2/2020 09:29

bottom feeders

[beeezzz] 03/2/2020 21:47

Management are appalling..

[valuschmalu] 30/1/2020 21:57

Pension trustees really need to get a shifty on and agree the deficit contributions pronto. The more they dither and the more share price drifts lower, the more likely credit insurance is pulled for suppliers and you enter the death spiral. If they stand behind the company there is a chance company recovers and pensions can be paid in full. If it does down, deferred pensioners will take a guaranteed haircut on their pensions

[eezymunny] 26/1/2020 09:38

Err the exceptional costs were not included in the underlying profit one assumes!

[shami6] 26/1/2020 09:09

Sorting out pension liabilities wont be a problem in my opinion, they agreed to 2.5 million anual countributions.However company would have to increase these monthly countributions this time.

[laurence llewelyn binliner] 26/1/2020 08:41

The continuing businesses incurred significant exceptional costs during the period in external adviser fees associated with the ongoing negotiations for the long-term financing of the Group, due to these exceptional costs which were £1.9M.., Technical plastics operating profit as per H1 accounts was £7.6M, plus the optics business going forward, rounded up to c£10M..

H2/FY2019 financials will be very interesting to see as the exceptional costs are worked through and we can see the profitability of the remaining businesses...

The exceptional costs associated with the discontinued businesses for H1 2020 total £2.8M so it will take some time to fully isolate the stand alone business from the Wipac disposal costs...

[eezymunny] 25/1/2020 23:07

Underlying(1) operating profit from continuing operations 3,322m (6.6 annualised)
Underlying(1) profit before tax from continuing operations 2,087m (4.1)

Where does all this 10m a year profits come from?

Durrr....

[laurence llewelyn binliner] 25/1/2020 18:59

It isn't pretty is it..., but with £10M a year profits and some growth from the businesses, plus the retained optics business adding, as the debt comes off so do sustaining finance costs, it is recoverable over a 3-5 year timeframe back to a dividend paying share for the longer term outlook shareholders ..

[shami6] 25/1/2020 18:25

Net debt is about 21 million as 5 millions from wipsc sale would be used to pay off debt. Total profit seems to be about 10 millions.They have to fork out 20 million next year and would have to restrucure the debt. Company is in much better position post wipsc ss we have a solid buisness generating 10 million anual profit.

[owenski] 25/1/2020 14:47

Been saying this was a bargepole for ages, ever since they axed the dividend.

Junk.

[valuschmalu] 25/1/2020 14:38

Net debt is c20mn so that's below 2x levered

[valuschmalu] 25/1/2020 14:38

Net debt is c20mn so that's below 2x levered

[reddevils1] 25/1/2020 14:16

The credit team at the bank here will be pushing for maximum 2x leverage on this business - so they will be asking for an equity injection of at least GBP10m.

Anyone out there want to put GBP10m pounds into this? Not a chance - so its about kicking the can down the road.

So the bank and the pension fund have a choice:

- sell the assets - and take a 30% haircut on the debt and pension liability now

- keep the business running - to generate a tiny bit of cash - which will all go to amortise pension liability and bank debt. Come the next recession at some point the bank decides its all too much hassle and the pension fund will just sell everything and wind this up.

The problem you have is that no decent management want to work in a business where they can't make any money; can't make any investment; and this business with this capital structure just shouldn't be listed.

I sympathise with all the retail investors over the years who have lost money here. I did see that the professional advisers continue to do OK (as always) - a few more million in fees to kick the can down the road.......

[laurence llewelyn binliner] 25/1/2020 13:48

#valuschmalu, it is a long journey to rebuild the balance sheet, but with the profitable parts of the company now less the Wipac liabilities the losses have been stemmed and we are on the road to recovery with the Optics business in hand adding profits too..

Restoring dividends is a few years or more down the road for sure, but in a couple of years time things will look a whole lot better than the H1 financials suggest now if they can sensibly keep control of and bring the pension deficit down without draining all the group profits, and reduce bank debt..

It is a hold/add and wait for me at 10p, all other parts of the group are making profits adding value, and it's a shame they could not turn Wipac around.., but will be interesting to see what Wuhu Anrui do differently or if they get in a muddle as well..!

[valuschmalu] 25/1/2020 13:21

My plan to get them out of this mess would be to agree a reasonable level of pension contributions which doesn't kill the company. I think £4mn is sensible. That leaves £7 or 8mn to cover interest expense and capex. At the same time, they should work in a sale of aerospace business for £10-15mn with proceeds ringfenced for pension scheme. They need to be more proactive with hedging such that when rates go up they hedge. This can be done over next couple of years. Whilst this caps upside it ensures the pension liability can never take the company down. With a lower deficit, annual contributions can drop back down to £2mn. You would be left with a plastics company with £10mn EBITDA worth approx £80mn with £20mn debt, £30mn pension liability so equity value of £30mn. Simples

[reddevils1] 25/1/2020 01:14

A company like this with this very poor management is worth 4x Ebitda. Therefore the equity has no value. Even if it was the best business in the sector and worth 10x Ebitda the equity has no value.

Any customer that has watched this debacle play out over the past year will be looking for a new supplier. So don’t expect a positive outcome here in my view.