Tyman — Growing pains at Juarez

Tyman (LN: TYMN)

Last close As at 27/03/2024

318.50

−4.50 (−1.39%)

Market capitalisation

625m

More on this equity

Research: Industrials

Tyman — Growing pains at Juarez

Slightly more subdued messaging from the US into the final quarter of FY17 but the effects should be temporary, in our view. The bigger picture footprint optimisation programme in North America is well founded and should provide longer-term competitive benefits. Fundamentally, the investment case remains attractive.

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Industrials

Carclo

Positioned for H2 recovery

Interims

Tech hardware & equipment

23 November 2017

Price

132.5p

Market cap

£97m

Net debt (£m) at end September 2017

29.6

Shares in issue

73.3m

Free float

91.7%

Code

CAR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.6)

(20.8)

11.1

Rel (local)

(2.3)

(21.4)

1.2

52-week high/low

179.0p

118.00p

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

Prelims

June 2018

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

As flagged at the AGM in September, performance at Carclo’s Technical Plastics division (CTP) was held back by key new programmes slipping from H118 to H218 as well as some operational issues, which have been largely resolved. This was balanced by outperformance in the LED Technologies division (LED), where the level of design, development and tooling activity was ahead of expectations. Management anticipates that full year trading will be in line with expectations, so we leave our estimates broadly unchanged.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

119.0

8.8

10.1

0.9

13.1

0.7

03/17

138.3

11.0

12.1

0.0

11.0

N/A

03/18e

152.2

12.5

12.9

0.0

10.3

N/A

03/19e

165.5

15.0

15.2

3.9

8.7

2.9

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

LED outperforms while CTP affected by H118 one-offs

Group revenues grew by 14% (£8.9m) year-on-year during H118 to £72.2m. This was the result of a combination of strong (24%) growth in the LED Technologies division, c £2.6m from the PTD acquisition and £2.2m from favourable currency movements. Pre-exceptional PBT decreased by 6% (£0.3m) to £4.6m as an increase in LED EBIT was offset by decreases in the other two divisions. EPS (adjusted for exceptional items) decreased more quickly, by 20% to 4.5p, because of the dilutive impact of the placing in October 2016.

H2 recovery underway

The contract delays and one-off operational issues that adversely affected CTP’s performance during H118 have largely been resolved. The small Aerospace division is expected to have stronger sales in H218 as some new programmes move to serial production. Although we do not expect the recovery in these two divisions to be sufficient to compensate for the underperformance during H118, the outperformance at LED makes up the balance, so we leave our group pre-exceptional PBT and EPS estimates unchanged for both FY18 and FY19. The uplift to our FY18 LED revenue estimate, which is related to the outperformance in H118, results in a small increase in our FY18 group revenue estimate from £148.1m to £152.2m and a similar size revision, from £159.6m to £165.5m, in FY19.

Valuation: CTP recovery to drive share price upside

We use a P/E-based, sum-of-the-parts methodology with three sets of sample peers drawn from the medical device manufacturing (P/E of 16.4x), automotive (mean P/E of 15.6x) and aerospace (mean P/E 19.0x) sectors to reflect the diversity of Carclo’s operations. This gives an indicative valuation range of 177-187p a share (previously 182-193p). Further newsflow confirming the recovery in CTP should be supportive of the stock, helping to close the valuation gap.

Divisional performance

Exhibit 1: Segmental analysis

£m

FY15

FY16

FY17

FY18e

FY19e

H117

H118

CTP revenues

64.3

70.5

87.8

94.0

104.0

39.2

43.7

LED Technologies revenues

34.1

40.5

43.4

52.0

55.0

20.6

25.6

Aerospace revenues

6.3

6.4

7.0

6.2

6.5

3.5

2.9

Discontinued revenues

2.9

1.6

0.0

0.0

0.0

0.0

0.0

Group revenues

107.5

119.0

138.3

152.2

165.5

63.3

72.2

CTP EBIT

5.4

6.2

8.7

9.3

10.6

3.5

3.2

LED Technologies EBIT

4.4

5.4

5.9

7.3

8.4

2.9

3.4

Aerospace EBIT

1.6

1.3

1.3

0.8

1.0

0.7

0.4

Discontinued EBIT

(1.4)

(0.1)

0.0

0.0

0.0

0.0

0.0

Unallocated costs

(2.2)

(2.7)

(3.4)

(3.1)

(3.2)

(1.5)

(1.6)

Group pre-exceptional EBIT

7.8

10.0

12.5

14.3

16.8

5.6

5.4

Exceptionals

(31.7)

(4.9)

(0.5)

0.0

0.0

0.0

0.0

Reported group EBIT

(23.9)

5.2

12.0

14.3

16.8

5.6

5.4

Source: Carclo data, Edison Investment Research

Technical Plastics (CTP): 61% of revenues, 46% of EBIT in H118

Technical Plastics revenues rose by (£4.5m) year-on-year to £43.7m. However, £2.6m of this increase was attributable to Precision Tool and Die (PTD), acquired in October 2016, and c £2.2m to favourable currency movements, so underlying revenues were static. Divisional operating profit reduced by £0.2m to £3.2m and EBIT margin by 1.4pp to 7.4%. As noted in September, the commencement of some key programmes was postponed from H118 into H218. In addition there were operational challenges associated with direct labour shortages in both the US and Czech businesses, which have been largely resolved. In addition, significant raw material price increases in the US affected Q1, although these increases have now been passed onto customers under contractual agreements.

In the short term, we expect an improvement in divisional performance during H218. Two of the three key contracts that were delayed during H118 are now shipping. Tooling for the third is being validated and management expects shipping on this programme to commence in Q418. The operational issues that affected H118 have been largely resolved. Management is also awaiting several new and replacement tooling and automation programmes to be awarded towards the end of FY18. These underpin our FY18 estimates and which support growth in FY18 and beyond.

In the longer term, divisional growth is driven by capacity expansion, which is always linked to customer contracts, while creating space to secure new customers and product lines in future. For example, the project to double the capacity of the facility in Bangalore to meet expected demand from its major electronics customer for technical parts and assemblies is now complete. The second phase of expansion at Mitcham in the UK, which is required to support the manufacture of part of Becton Dickinson’s Vystra disposable pen, remains on schedule for completion later in FY18, ahead of volume production in calendar 2018. The facility in Taicang, China, which was completed during H216, continues to provide production capacity for the anchor global medical device customer as well as accommodating new work from existing and new customers.

Although the operational issues affecting H118 have mostly been resolved, we do not expect the division to be able to make up the underperformance in H218. We revise our divisional estimates, reducing FY18 revenues from £95.0m to £94.0m and FY18 EBIT from £10.0m to £9.2m. This gives 4% revenue growth in FY18 (including a full year contribution from PTD), followed by an 8% revenue increase in FY19. Although there is typically a dip in efficiency immediately following the expansion or opening of a new facility or commencing manufacture of new products, overall we expect the improvement in operating margins noted in FY17 to resume in FY19, with FY18 operating margins being similar to FY17 because of the issues affecting the first half. We note that management is seeking to increase the proportion of work related to the medical sector in order to reduce variability of demand from other sectors. For example non-medical demand was weaker during H118, contributing to the underperformance. Significant progress was made during H118 to upgrade technical and validation skills and facilities at the Czech site so that it can take on medical projects, as well as marketing this enhanced capability. As a result of these actions, the Czech operation has secured its first major medical project. This is scheduled to commence production in late calendar 2018.

LED Technologies: 35% of revenues, 48% of EBIT in H118

Divisional revenues rose by 24% (£5.0m) year-on-year to £25.6m, as further programmes moved into the manufacturing phase. There was little impact from currency movements. As observed at the AGM, the division performed ahead of expectations as a result of strong design, development and tooling activity and more new business activity than initially anticipated. However, lighting product sales were slightly behind management’s target because of delayed production ramp-ups on two new car launches. The LED Optics business continued to generate strong sales and profits as it benefited from strong demand for customer optics. Divisional operating profit grew by 16% to £3.4m.

Looking forward to H218, all of Wipac’s current design, development and tooling projects are on track. Additionally, Wipac is working on several pre-development programmes that, once confirmed, should make a strong contribution to H218 profits. Divisional growth is dependent on continuing to secure new projects. Demand for low- and medium-volume lighting projects remains strong. Wipac has positioned itself for winning new work by investing in additional personnel through the acquisition of FLTC, an independent automotive design company based in Czech Republic (now Wipac Czech) in March 2017 and reorganising the Buckingham facility to create more manufacturing space. It has transferred Optics moulding from this site to CTP’s Czech site (a move that also helps with Optics margins) and constructed a dedicated 1,000m2 warehouse next to the existing Buckingham facility, freeing up space in the main production facility that was previously used for warehousing. The new manufacturing space is being used for three mid-volume production cells. In the medium term, management intends to extend the main Buckingham factory to meet customer demand.

Noting the H118 outperformance, we revise our divisional estimates, raising the FY18 revenue estimate from £46.1m to £52.0m and FY18 EBIT estimate from £6.4m to £7.4m, though this is dependent on the pre-development programmes mentioned above being confirmed. This gives divisional revenue growth of 20% in FY18 and 6% in FY19. We expect substantially stronger revenue growth in FY20, which is when volume manufacturing for the first mid-volume programme kicks in, although we are not issuing estimates for the year at this stage.

Aerospace: 4% of revenues, 5% of EBIT in H118

Divisional revenues declined by 18% year-on-year to £2.9m, while operating profits halved to £0.4m because a number of one-off machining contracts came to an end and the spares market was weak. Management expects H218 to benefit from some new programmes passing to serial production and an improvement in demand for spares. Overall, the market remains stable and the business is highly cash generative. Noting the slow start to FY18, we revise our divisional estimates, reducing the FY18 revenue estimate from £7.0m to £6.2m and the EBIT estimate from £1.2m to £0.8m.

Group performance

Improvement in LED division pulled back by a short-term dip in the other two divisions during H118

Group revenues grew by 14% (£8.9m) year-on-year during H118 to £72.2m. This was the result of a combination of strong growth in the LED Technologies division, c £2.6m from the PTD acquisition and £2.2m in favourable currency movements. Pre-exceptional EBIT declined by 3% (£0.2m) to £5.4m as rising EBIT in the LED division was offset by reductions in the other two divisions and a 5% (£0.1m) uplift in unallocated costs. Financing charges increased by £0.1m to £0.9m, reflecting higher debt levels. Pre-exceptional PBT decreased by 6% (£0.3m) to £4.6m. EPS (adjusted for exceptional items) decreased more quickly, by 20% to 4.5p, because of the dilutive impact of the placing in October 2016.

LED outperformance plus H218 recovery elsewhere keeps FY18 on track

The contract delays and one-off operational issues that adversely affected CTP’s performance during H118 have largely been resolved. The small Aerospace division is expected to have stronger sales in H218 as some new programmes move to serial production. Although we do not expect the recovery in these two divisions to be sufficient to compensate for the underperformance during H118, the outperformance at LED makes up the balance, so we leave our group pre-exceptional PBT and EPS estimates unchanged for both FY18 and FY19. We note that achieving this depends on both the CTP and LED divisions being nominated on a number of new programmes in H218. The uplift to our FY18 LED revenue estimate, which is related to the outperformance in H118, results in a small increase in our FY18 group revenue estimate from £148.1m to £152.2m and another modest uplift, from £159.6m to £165.5m in FY19.

Cash generated being reinvested to support growth

Net debt increased by £3.6m during H118 to £29.6m. Working capital rose by £4.4m, primarily because of increased subcontract tooling activity. Capital expenditure (including investment in intangibles) was higher than the previous year (£5.8m in H118 vs £3.7m in H117), most of which related to additional capacity in the UK and Indian CTP facilities and production equipment for Wipac.

The continued investment in capex (which we estimate at £13.0m in FY18 and £9.5m in FY19) is expected to drive increased profits, supporting a decrease in net debt to £21.6m at end FY19. Before that point, however, the £4.5m increase in working capital during FY18 associated with developing the tooling for mid-volume programmes ahead of manufacture, together with relatively high levels of capex, is expected to result in a £3.0m increase in debt during FY18 to £29.0m at the year end.

Pension deficit reduced further

During H118 the deficit, as calculated under IAS 19, reduced from £27.0m at end March 2017 to £24.8m (net of deferred tax) as a result of improved corporate bond yields. This position is a substantial improvement compared with the deficit of £42.6m reported at end H117 (September 2016), when the discount rate had dropped to a low of 2.1% following the EU referendum vote. At that point, the scale of the deficit had eliminated the available distributable reserves thus making dividend distribution legally impossible, so only the interim dividend was paid for FY16 and no further payments made after that. In June 2017, the board stated its intention of resuming dividend payments in FY19 provided that the level of distributable reserves is sufficient such that a sustainable and regular dividend can be reintroduced.

The level of payments into the pension scheme was agreed with scheme trustees on the basis of the triennial valuation at 31 March 2015. Payment levels will be reviewed at the next triennial valuation, which is scheduled for March 2018. We model payments for FY18, FY19 and FY20 at a level similar to FY17 (£1.2m).

Valuation

Examination of the comparators shows that Carclo, which has a diversified business model, is trading on multiples that are substantially lower than those for medical device companies and below those for automotive and aerospace industries. We use a sum-of-the-parts calculation to determine an indicative FY18e P/E multiple for Carclo, as this methodology acknowledges that around half of its divisional operating profit is attributable to the sale of products to the global healthcare industry. Where available, the P/E multiple applied to each division is the mean for each sector, as shown in Exhibit 2. There are a number of companies manufacturing high-volume medical products but the key one of relevance, which we use in the sum-of-the-parts calculation, is Gerresheimer, as its products are primarily for use in the medical/pharmaceutical test facilities, rather than for patient care (Ambu, Coloplast and Straumann). As can be seen from Exhibit 2, the latter trade on much higher multiples and are excluded from our sum-of-the-parts calculations. As shown in Exhibit 3, the weighted average P/E multiple derived from the multiples for the three sectors is 16.2x.

Exhibit 2: Peer multiples

Name

Market cap ($m)

EV/sales 1FY (x)

EV/sales 2FY (x)

EV/EBITDA 1FY (x)

EV/EBITDA 2FY (x)

P/E 1FY (x)

P/E 2FY (x)

CARCLO at 142.5p/share

137

0.9

0.8

6.7

5.8

11.1

9.4

CARCLO at 177p/share

172

1.0

0.9

8.0

7.0

13.8

11.6

CARCLO at 187p/share

181

1.1

1.0

8.4

7.3

14.6

12.3

Medical devices: patient implants and disposables

AMBU A/S-B

4,251

10.2

8.9

40.1

31.1

59.3

44.7

COLOPLAST-B

17,384

6.7

6.2

18.9

17.6

26.7

24.7

STRAUMANN HOLDING AG-REG

11,216

10.3

8.8

35.1

29.4

45.4

38.3

Medical devices: drug delivery and packaging

GERRESHEIMER AG

2,446

2.1

2.0

9.3

8.9

16.4

15.0

Automotive

AMERICAN AXLE & MFG HOLDINGS

1,924

0.9

0.8

5.1

4.6

4.8

5.2

BORGWARNER INC

10,896

1.3

1.3

7.9

7.4

13.5

12.5

BREMBO SPA

5,026

1.9

1.7

9.5

8.9

15.3

15.6

DELPHI AUTOMOTIVE PLC

26,095

1.8

1.7

10.2

9.6

14.5

13.7

FAURECIA

10,002

0.5

0.5

5.0

4.6

14.0

12.4

HALDEX AB

471

0.9

0.9

10.7

7.9

21.5

16.1

HELLA GMBH & CO KGAA

6,510

0.8

0.8

5.8

5.3

13.7

12.7

LEONI AG

2,237

0.5

0.5

6.4

6.1

13.9

12.9

MAGNA INTERNATIONAL INC

19,101

0.6

0.5

5.5

5.2

8.9

8.1

PARAGON AG

351

2.6

2.1

16.0

12.1

49.3

32.0

VALEO SA

16,342

0.8

0.7

6.3

5.5

13.6

11.9

VISTEON CORP

3,955

1.2

1.1

10.1

9.3

20.3

18.1

Mean

1.1

1.0

7.2

6.8

15.6

14.0

Aerospace

FACC AG

779

1.2

1.0

9.8

8.7

18.3

14.7

LATECOERE

602

0.8

0.8

10.1

8.9

16.0

13.8

SENIOR PLC

1,470

1.3

1.2

10.5

9.3

19.7

17.1

TT ELECTRONICS PLC

462

1.2

1.1

11.2

10.7

22.2

18.9

Mean

1.1

1.0

10.4

9.4

19.0

16.1

Source: Bloomberg, Edison Investment Research. Note: Prices at 16 November 2017. Grey shading indicates exclusion from mean.

Applying the weighted average P/E multiple of 16.2x to Carclo’s FY18e (to March 2018) EPS of 12.9p gives an indicative valuation of 208.1p/share. We think that Carclo’s relatively small market capitalisation compared to the majority of peers merits some discount to this. However, we believe that the discount of 32% to our indicative valuation of 208.1p implied by the current share price is too severe given the stability provided by long-term customer relationships combined with potential for growth in Carclo’s two main divisions. Applying an arbitrary 10-15% discount gives a valuation range of 177-187p (see Exhibit 3). Our valuation range was previously 182-193p/share. To cross-check our valuation, we compare EV/EBITDA multiples implied by our P/E-derived values with a blended sum-of-the-parts EV/EBITDA for the peer group. Our indicative valuation of 177-187p implies a year one EV/EBITDA range of 8.0-8.4x (see Exhibit 2), which compares to the peer group blended year one EV/EBITDA multiple of 8.5x.

Carclo’s share price has dropped by around 8% since the AGM statement on 8 September advising of short-term setbacks in the Technical Plastics division. We believe that further newsflow confirming that this is temporary should help close the valuation gap, with potential for further share price appreciation beyond this as Carclo delivers on the announced additional mid-volume automotive lighting programmes.

Exhibit 3: SOTP indicative valuation

Division

FY18e EBIT share

P/E (x)

EV/EBITDA (x)

CTP (Healthcare drug delivery and packaging peers)

53.3%

16.4

9.3

LED (Automotive peers)

42.0%

15.6

7.2

Aerospace (Aerospace peers)

4.7%

19.0

10.4

Weighted average multiples

16.2

8.5

FY18e EPS

12.9p

Undiscounted indicative value based on weighted P/E

208.1p

Indicative value applying 10% discount

187.3p

Indicative value applying 15% discount

176.9p

Source: Edison Investment Research

Exhibit 4: Financial summary

£000s

2016

2017

2018e

2019e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

118,974

138,282

152,201

165,483

EBITDA

 

 

13,840

17,033

19,342

22,346

Operating Profit (before amort. and except.)

10,034

12,498

14,342

16,846

Intangible Amortisation

0

0

0

0

Exceptionals

(4,857)

(541)

0

0

Other

0

0

0

0

Operating Profit

5,177

11,957

14,342

16,846

Net Interest

(1,282)

(1,479)

(1,850)

(1,870)

Profit Before Tax (norm)

 

 

8,752

11,019

12,492

14,976

Profit Before Tax (FRS 3)

 

 

3,895

10,478

12,492

14,976

Tax

(1,708)

(2,496)

(3,123)

(3,894)

Profit After Tax (norm)

6,692

8,418

9,369

11,082

Profit After Tax (FRS 3)

2,187

7,982

9,369

11,082

Average Number of Shares Outstanding (m)

66.2

69.4

73.0

73.0

EPS - normalised (p)

 

 

10.1

12.1

12.9

15.2

EPS - normalised fully diluted (p)

 

 

10.1

12.1

12.9

15.2

EPS - (IFRS) (p)

 

 

3.3

11.5

12.9

15.2

Dividend per share (p)

0.9

0.0

0.0

3.9

EBITDA Margin (%)

11.6

12.3

12.7

13.5

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

8.4

9.0

9.4

10.2

BALANCE SHEET

Fixed Assets

 

 

66,660

80,085

87,885

91,685

Intangible Assets

20,257

26,323

26,623

26,923

Tangible Assets

36,597

43,423

50,923

54,423

Investments

9,806

10,339

10,339

10,339

Current Assets

 

 

59,635

80,187

82,246

91,489

Stocks

15,596

19,250

20,620

22,669

Debtors

26,647

38,468

42,158

43,071

Cash

16,692

22,269

19,268

25,549

Other

700

200

200

200

Current Liabilities

 

 

(33,428)

(46,884)

(47,474)

(49,784)

Creditors

(22,732)

(27,996)

(28,586)

(30,896)

Short term borrowings

(10,696)

(18,888)

(18,888)

(18,888)

Long Term Liabilities

 

 

(60,000)

(69,125)

(69,125)

(69,125)

Long term borrowings

(30,746)

(29,406)

(29,406)

(29,406)

Other long term liabilities

(29,254)

(39,719)

(39,719)

(39,719)

Net Assets

 

 

32,867

44,263

53,532

64,264

CASH FLOW

Operating Cash Flow

 

 

13,933

8,916

13,872

20,694

Net Interest

(861)

(762)

(750)

(770)

Tax

(1,253)

(2,086)

(3,123)

(3,894)

Capex

(9,593)

(7,683)

(13,000)

(9,500)

Acquisitions/disposals

0

(5,672)

0

(250)

Financing

20

7,616

0

0

Dividends

(1,821)

(596)

0

0

Net Cash Flow

425

(267)

(3,001)

6,280

Opening net debt/(cash)

 

 

24,518

24,750

26,025

29,026

HP finance leases initiated

0

0

0

0

Other

(657)

(1,008)

0

0

Closing net debt/(cash)

 

 

24,750

26,025

29,026

22,745

Source: Carclo accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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

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Copyright 2017 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 Investments Pty Ltd (Corporate Authorised Representative (insert CAR Number) of Myonlineadvisers Pty Ltd (AFSL: 427484) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. . 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 purposes 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 2017. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 2017 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 Investments Pty Ltd (Corporate Authorised Representative (insert CAR Number) of Myonlineadvisers Pty Ltd (AFSL: 427484) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. . 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 purposes 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 2017. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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