Carclo plc

www.carclo.co.uk TICKER: CAR     EXCHANGE: AIM

Carclo is a technology-led plastics business with global, integrated capabilities and operations.

LATEST REPORTS

 
Resetting the bar
Published: Jan 15 2018

Carclo is a leading global designer and contract manufacturer (FY17 sales 70% non-UK) of fine tolerance and often mission critical components for the medical (46%), optics (5%), aerospace (5%) and luxury/supercar (27%) markets.
Although clearly disappointing, we think today’s update of a ‘near-perfect storm’ should not be viewed as materially damaging to Carclo’s longer term prospects. Here, underpinned by the positive secular tailwinds of rising healthcare spend and increasing model fragmentation within the high-performance car market. In fact, the Board is still hopeful of signing all 5 of these contracts in due course.
What’s more, several self-help measures have been kicked-off in order to improve existing profit margins, especially within Technical Plastics (TP) - with cash continuing to be tightly controlled. Indeed, in terms of the balance sheet the group is “operating well within its banking covenants”, with net debt expected to end March at £33m, equivalent to a comfortable 2x EBITDA (vs 1.5x LY). 
Separately, and after 14 years as Group Finance Director, Robert Brooksbank has decided to move on at the end of March to pursue other career opportunities. Similarly, Chairman Michael Derbyshire has chosen to step down at July’s AGM and will be replaced by non-exec Mark Rollins. Current Financial Controller, Richard Ottaway, will become interim CFO from 1st April until a permanent successor is appointed. 
With regards to the numbers, we have cut our FY18 and FY19 PBT forecasts to £9.0m (vs £12.4m before and £11m LY) and £11.0m, respectively, which in turn has pushed our valuation down from 206p to 145p/share. That said, we still anticipate the final dividend will be reinstated next year, albeit at a lower level of 1.0p (vs 1.5p). Even at the last closing price of 125p, we continue to see the stock as lowly rated, trading on 11.5x EV/EBIT and 13.4x PER multiples; or 20%-40% discounts compared to peer averages. 
 
'Stronger' H2 expected after 'solid' H1
Published: Nov 14 2017

Carclo is a leading global designer and contract manufacturer (FY17 sales 70% non-UK) of fine tolerance and often mission critical components for the medical (46%), optics (5%), aerospace (5%) and luxury/supercar (27%) markets.
Despite challenging trading for mass auto manufacturers, there have been more supercars purchased so far this year than for the whole of 2016. Globally too, sales of Bentleys, Ferraris, Lamborghinis, McLarens and Rolls-Royces have collectively jumped >50% since 2012 according to Bloomberg. Good news for the likes of Carclo, as is the apparent absence of significant margin pressure at the luxury-end compared to mainstream names, given their cachet and elevated price-points. 
Today’s interims are characterised by out-performance in LEDs (adjusted EBIT up 16% to £3.4m), offset by temporary issues (now largely fixed) in Technical Plastics (-6% £3.2m) and Aerospace (-50% £359k). The upshot being that, even though H1 turnover rose 14% (or 6.5% LFL constant currency) to £72.2m (vs £63.2m LY), both EBIT and EPS fell to £5.4m (-3%) and 4.5p (-19.5%) respectively - with the latter further affected by a higher share-count and tax rate (27.5% vs 23.6%).
Current trading is said to be in line with FY18 PBT expectations of £12.4m (vs £11.0m last year), albeit we understand there are a few outstanding contracts (eg Wipac) that still need to awarded and delivered in Q4. Assuming all goes to plan, then H2 turnover, EBIT and PBT are pencilled in for £77.8m, £9.4m (margin 12.1%) and £8.4m (£4.6m H1) respectively, equivalent to 2/3rds of FY18 profits.
In line with September’s AGM, net debt ticked up to £29.6m (£26m March 2017) on the back of higher capex (£5.7m vs £3.6m) and a £4.4m (£4.5m) working capital build primarily related to Wipac’s design/tooling work on new ‘medium’ volume models. Moreover there was a negative currency effect on the retranslation of overseas borrowings – altogether delivering H1 cash conversion of 66% (vs 58% LY). That said, the pension deficit (net of tax) declined £2.2m to £24.8m from £27.0m, thanks to a small rise in corporate bond yields (2.7% vs 2.6%) and £2.5m of investment gains.
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. In relative terms, we believe the stock also looks good value, trading on EV/EBIT and PER and multiples of 9.3x and 10.9x respectively vs peer averages of >16x and >20x.
 
On track for FY18 with strong H2 expected
Published: Sep 07 2017

Carclo is a leading global designer and contract manufacturer (FY17 sales 70% non-UK) of fine tolerance and often mission/safety critical components for the medical (46%), optics (5%), aerospace (5%) and luxury/supercar (27%) markets.
One of Carclo’s many attractions is its broad spread of activities, spanning multiple geographies, technologies and vertical markets. When one division stumbles another picks up the baton. And so it has proved today, with the group saying this morning that it is “on track” to hit FY18 numbers, despite experiencing some H1 “challenges” in Technical Plastics (re: program delays and operational difficulties) on top of temporary weakness in Aerospace demand. 
Better still, the vast majority of revenues are tied to long-cycle products, high client retention and OEM platforms with typical life-spans of between 5-20 years. Hence providing excellent forward visibility, with underlying H1 vs H2 PBT likely to be split circa 1/3rd : 2/3rds this year. Consequently, there is no change to our adjusted EBIT forecast for this year (£14.3m) and next (£16.9m).
In terms of valuation, we believe the stock (at 155p) remains cheap, trading on CY PER and EV/EBIT multiples of 12.1x and 9.9x respectively vs peer averages of around 20x and 16x (see below). This also compares favourably with our 200p/share sum-of-the-parts: calculated 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, the pension deficit and net debt. 
 
Carclo - Equity Development Investor Forum, June 2017
Published: Jun 23 2017

Christopher Malley, Chief Executive, provides an overview of Carclo. 
 
High growth stock trading >30% below SOTP valuation
Published: Jun 15 2017

Carclo is a leading global designer and contract manufacturer (FY17 sales 70% non-UK) of fine tolerance and often mission/safety critical components for the medical (46%), optics (5%), aerospace (5%) and luxury/supercar (27%) markets. Carclo has shown that you don’t have to be a ‘Silicon Valley’ tech start-up to deliver double-digit top line growth, as the group has been doing exactly this for years.
Its strategy of dove-tailing front-end innovative design, prototyping and tooling capability, with back-end flexible manufacturing, global coverage and supply chain expertise, is proving a winning formula. In turn, helping to propel FY17 revenues to £138.3m (+16.2%, or 10% constant currency), EPS up 20% (12.1p) and EBIT margins to 9.0% (vs 8.4% LY).
Better still, the vast majority of these volumes are tied to OEM platforms with typical life-spans of between 5-20 years. Hence providing excellent forward visibility and predictable earnings. We think the momentum (12.4% pa sales CAGR) built up over the past 4 years should continue - underpinned by the production of long-cycle end-user products, low client churn and secular growth.
Our forecast revenues are set to expand at a 10% pa clip over the next 4 years, and even accelerate slightly once Wipac’s new mid-volume LED contracts come on stream from late 2019 onwards. EPS is predicted to jump 68% from 12.1p in FY17 to 20.3p by FY21, on turnover up 46% from £138.3m to £202.5m. 
 
Encouragingly for income seekers, the Board recognises the importance of sustainable and progressive dividends. After a suspension due to pension considerations affecting distributable reserves, the resumption of payments has been pencilled in for 12 months’ time. 
The stock at 152p appears lowly rated, trading on PER and EV/EBIT multiples of 11.9x and 9.8x respectively vs peer averages of >20x and c. 16x-17x.We calculate there is >30% disparity versus our 200p/share sum-of-the-parts valuation.  
NB CEO Chris Malley is presenting to investors in London next Wed evening, 21st : if interested you can register here.

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