Carclo — Update 1 September 2016

Carclo (LN: CAR)

Last close As at 24/04/2024

34.70

0.00 (0.00%)

Market capitalisation

26m

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Research: TMT

Carclo — Update 1 September 2016

Carclo

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TMT

Carclo

Trading well but bond yields affecting dividend

Update on trading
and dividend

Tech hardware & equipment

1 September 2016

Price

130p

Market cap

£86m

Net debt (£m) at 31 March 2016

24.8

Shares in issue

66.2m

Free float

92.6%

Code

CAR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.3)

(15.0)

(7.8)

Rel (local)

(11.4)

(21.2)

(14.4)

52-week high/low

163.75p

110.25p

Business description

Carclo is a specialist in high-precision plastic moulding principally in healthcare, optical and automotive applications. Its two main end-markets are high-volume medical consumables and low-volume, very high-value automotive lighting, typically for supercars.

Next events

Interims

November 2016

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Carclo is a research client of Edison Investment Research Limited

The two divisions driving growth – Technical Plastics and LED Technologies – are both performing well and in line with management expectations, so we leave our earnings estimates unchanged. However, low corporate bond rates have resulted in a significant increase in the pension deficit, meaning that management may not be able to use the profit growth to fund Carclo’s progressive dividend policy. As the dividend suspension does not reflect any issues with profits growth, we reiterate our earnings estimates, which look for 15% adjusted PBT growth in FY17.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

107.5

7.1

7.9

2.8

16.5

2.2

03/16

119.0

8.8

10.1

0.9

12.9

0.7

03/17e

124.3

10.1

11.2

0.0

11.6

N/A

03/18e

134.9

11.5

12.7

0.0

10.2

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Operating divisions trading well

Both the larger divisions have started FY17 well. Demand from the Technical Plastics healthcare customers was as expected. News of additional production volume for non-healthcare work and additional healthcare projects in China is encouraging, although not incremental to our estimates. The automotive programmes, including the one for a medium-volume vehicle, are progressing as planned. The Optics business has experienced strong demand. All these factors give increased confidence in our estimate of 15% adjusted PBT growth for FY17.

Bond issues affect dividend payments

Given this positive trading situation, profit generation easily outstrips management’s planned 3% increase in the dividend pay-out during FY17. However, the collapse of corporate bond rates post the EU membership referendum has led to an increase in the probable IAS 19 pension deficit, which will eliminate the distributable reserves. If this situation continues, management is legally prevented from paying a final dividend for FY16 or future periods. We adjust the FY16 dividend payment from 2.9p/share to 0.9p (the interim dividend payment) and our FY17 and FY18 DPS estimates from 3.0p and 3.1p respectively to zero.

Valuation: Earnings generation not affected

The share price has fallen by 17% since the news, probably reflecting the reaction of some investors who seek dividends. We note, however, that the dividend yield, had management been able to proceed with its progressive dividend policy, would only have been 2.2%. The attraction of this stock, in our opinion, is the potential for earnings growth, which is not impaired by the news of dividend suspension. The two key divisions continue to grow as expected. Management has stated that it is not intending to make any additional payments to the pension scheme to cover the current actuarial deficit.

Financial summary

Exhibit 1: Financial summary

Year end 31 March

£000s

2015

2016

2017e

2018e

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

107,503

118,974

124,334

134,917

Cost of Sales

0

0

0

0

EBITDA

 

 

11,402

13,840

16,018

17,383

Operating Profit (before amort. and except.)

7,789

10,034

11,818

13,183

Intangible Amortisation

0

0

0

0

Exceptionals

(31,668)

(4,857)

0

0

Other

0

0

0

0

Operating Profit

(23,879)

5,177

11,818

13,183

Net Interest

(666)

(1,282)

(1,700)

(1,700)

Profit Before Tax (norm)

 

 

7,123

8,752

10,118

11,483

Profit Before Tax (FRS 3)

 

 

(24,545)

3,895

10,118

11,483

Tax

1,772

(1,708)

(2,732)

(3,100)

Profit After Tax (norm)

6,068

6,687

7,386

8,382

Profit After Tax (FRS 3)

(22,773)

2,187

7,386

8,382

Average Number of Shares Outstanding (m)

66.2

66.2

66.2

66.2

EPS - normalised (p)

 

 

7.9

10.1

11.2

12.7

EPS - normalised fully diluted (p)

 

 

7.9

10.1

11.1

12.7

EPS - (IFRS) (p)

 

 

(33.2)

3.3

11.2

12.7

Dividend per share (p)

2.8

0.9

0.0

0.0

EBITDA Margin (%)

10.6

11.6

12.9

12.9

Operating Margin (before GW and except.) (%)

7.2

8.4

9.5

9.8

BALANCE SHEET

Fixed Assets

 

 

66,065

66,660

69,160

71,660

Intangible Assets

26,000

20,257

20,957

21,657

Tangible Assets

31,721

36,597

38,397

40,197

Investments

8,344

9,806

9,806

9,806

Current Assets

 

 

49,362

59,635

62,853

69,003

Stocks

13,440

15,596

16,351

17,743

Debtors

24,367

26,647

28,614

31,419

Cash

10,855

16,692

17,188

19,142

Other

700

700

700

700

Current Liabilities

 

 

(27,515)

(33,428)

(33,856)

(35,623)

Creditors

(21,802)

(22,732)

(23,160)

(24,927)

Short term borrowings

(5,713)

(10,696)

(10,696)

(10,696)

Long Term Liabilities

 

 

(46,559)

(60,000)

(61,000)

(61,000)

Long term borrowings

(29,660)

(30,746)

(31,746)

(31,746)

Other long term liabilities

(16,899)

(29,254)

(29,254)

(29,254)

Net Assets

 

 

41,353

32,867

37,157

44,040

CASH FLOW

Operating Cash Flow

 

 

3,549

13,933

13,524

14,754

Net Interest

(650)

(877)

(2,200)

(2,200)

Tax

(712)

(1,253)

(2,732)

(3,100)

Capex

(7,912)

(9,577)

(7,500)

(7,500)

Acquisitions/disposals

0

0

0

0

Financing

103

20

(1,000)

0

Dividends

(1,752)

(1,821)

(596)

0

Net Cash Flow

(7,374)

425

(504)

1,953

Opening net debt/(cash)

 

 

17,680

24,518

24,750

25,254

HP finance leases initiated

0

0

0

0

Other

536

(657)

0

0

Closing net debt/(cash)

 

 

24,518

24,750

25,254

23,300

Source: Carclo accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Carclo and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purp
oses only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Carclo and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purp
oses only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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