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Carclo — Contract delays to affect H218 performance

Carclo (LN: CAR)

Last close As at 05/08/2026

—

— 0.00 (0.00%)

Market capitalisation

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More on this equity

Research: TMT

Carclo — Contract delays to affect H218 performance

Carclo has recently announced that its FY18 performance is likely to be lower than previously expected. This is because of contract delays affecting both the Technical Plastics (CTP) and LED Technologies (LED) divisions as well as a delay to the anticipated ramp-up in a non-medical project for CTP, which management expected would benefit H218. We reduce our FY18 and FY19 estimates, introduce FY20 estimates and revise our indicative valuation range from 177-187p/share to 145-154p/share.

Analyst avatar placeholder

Written by

TMT

Carclo

Contract delays to affect H218 performance

Trading update

Tech hardware & equipment

22 January 2018

Price

83.0p

Market cap

£61m

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

(34.5)

(38.5)

(39.9)

Rel (local)

(36.0)

(40.2)

(44.6)

52-week high/low

179.0p

80.0p

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

Carclo has recently announced that its FY18 performance is likely to be lower than previously expected. This is because of contract delays affecting both the Technical Plastics (CTP) and LED Technologies (LED) divisions as well as a delay to the anticipated ramp-up in a non-medical project for CTP, which management expected would benefit H218. We reduce our FY18 and FY19 estimates, introduce FY20 estimates and revise our indicative valuation range from 177-187p/share to 145-154p/share.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

119.0

8.8

10.1

0.9

8.2

1.1

03/17

138.3

11.0

12.1

0.0

6.9

N/A

03/18e

140.6

8.9

9.2

0.0

9.0

N/A

03/19e

147.7

11.0

11.2

3.9

7.4

4.7

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

Delayed placement of contracts by customers

The operational issues affecting the CTP division that were noted at the interim stage have been addressed. However, the division continues to be affected by contract delays, specifically the award of two large tooling and automation projects. Management is seeking to reduce reliance on winning new tooling and automation contracts by improving underlying operating margins from existing business. In our November update, we noted that LED divisional growth was dependent on continuing to secure new projects. The award of three new contracts has been delayed due to customers changing their time horizons on vehicle launches. Management is confident that Wipac will be successful in winning a number of these programmes, but the delays will have an impact on divisional FY18 performance. Despite this setback, the group’s LED supercar lighting business has performed as anticipated and new product launches continue to be made on time.

Non-medical demand lower than forecast

In addition, management had expected an improvement in CTP performance during H218 because a large and longstanding non-medical customer had been indicating a ramp up in demand for moulded components during the period. This has not yet happened. Noting the variability in demand for non-medical projects, which contributed to H118 underperformance as well, management continues to increase the proportion of medical related work, upgrading capabilities at the Czech site so it can take on medical projects.

Valuation

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 18.0x), automotive (mean P/E of 18.9x) and aerospace (mean P/E 21.3x) sectors to reflect the diversity of Carclo’s operations. This gives an indicative valuation range of 145-154p per share (previously 177-187p). Newsflow regarding receipt of contract awards should be supportive of the stock, helping to close the valuation gap.

Changes to estimates

We have revised our estimates to reflect lower than previously expected revenues and profits in both the larger divisions, CTP and LED Technologies, as well as smaller downwards revisions for the smaller Aerospace division as it continues to shift to lower-value precision machining work.

We introduce FY20 estimates, taking a conservative view on the impact of deliveries for the first mid-volume lighting programme, which are expected to commence during the year.

Carclo is likely to benefit from cuts in US corporation tax. However, we are not making any changes to our underlying tax rate (modelled at 25% for FY18, 26% for FY19 and 27% for FY20) until management has evaluated the details of the changes.

Exhibit 1: Revisions to estimates

Year end 31 March

FY17

FY18e

FY19e

FY20e

Actual

Old

New

% change

Old

New

%change

New

Group revenues (£m)

138.3

152.2

140.6

-7.6%

165.5

147.7

-10.8%

157.8

Group adjusted PBT (£m)

11.0

12.5

8.9

-28.5%

15.0

11.0

-26.3%

12.1

Group adjusted EPS (p)

12.1

12.9

9.2

-28.5%

15.2

11.2

-26.3%

12.1

Group DPS (p)

0.0

0.0

0.0

0.0%

3.9

3.9

0.0%

4.2

Source: Carclo, Edison Investment Research

Board changes

Group Finance Director Robert Brooksbank is leaving the group on 31 March 2018 after 14 years in his current role. The board has begun the process of recruiting his replacement. Richard Ottaway, group financial controller and company secretary, will act as the interim chief financial officer from 1 April 2018 until a permanent successor is appointed. In addition, Non-executive Chairman Michael Derbyshire will retire from the board at the AGM in July 2018, having served over 12 years as a non-executive director, almost six years of which has been spent as chairman. Michael will be succeeded by Mark Rollins, who joined the board as non-executive director on 1 January 2018. Mark is currently also senior non-executive director of Tyman and Vitec and non-executive chairman of Sigma Precision Components UK. He was group chief executive of Senior from March 2008 to June 2015, having previously served as group FD of Morgan Crucible from July 2000.

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 approach 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 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 18.6x.

Exhibit 2: Listed peers

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 @ 81.6p (current share price)

82

0.6

0.6

5.4

4.6

8.9

7.3

CARCLO @ 145p

147

0.9

0.9

8.4

7.1

15.8

13.0

CARCLO @ 154p

156

1.0

0.9

8.8

7.5

16.7

13.7

Healthcare: patient implants and disposables

AMBU A/S-B

4,414

10.3

8.9

40.5

31.3

66.8

50.2

COLOPLAST-B

18,067

6.7

6.2

19.0

17.7

27.0

25.0

STRAUMANN HOLDING AG-REG

11,490

10.2

8.7

34.6

28.9

45.5

38.0

Healthcare: drug delivery and packaging

GERRESHEIMER AG

2,753

2.3

2.2

10.0

9.6

18.0

16.4

Automotive

AMERICAN AXLE & MFG HOLDINGS

2,090

0.9

0.8

5.2

4.7

5.3

5.6

BORGWARNER INC

12,066

1.5

1.4

8.6

8.1

15.0

13.6

BREMBO SPA

5,435

1.9

1.8

9.8

9.2

16.0

16.3

DELPHI TECHNOLOGIES PLC

5,268

1.3

1.2

7.0

6.6

13.4

12.5

FAURECIA

12,000

0.6

0.5

5.6

5.2

16.0

14.1

HALDEX AB

497

0.9

0.9

10.7

8.0

21.7

18.6

HELLA GMBH & CO KGAA

7,709

0.9

0.9

6.7

6.1

15.8

14.5

LEONI AG

2,551

0.5

0.5

6.9

6.5

14.9

13.8

MAGNA INTERNATIONAL INC

21,431

0.6

0.6

6.0

5.7

10.0

8.9

PARAGON AG

450

3.2

2.6

19.5

15.0

61.1

39.9

VALEO SA

18,951

0.9

0.8

7.0

6.1

15.2

13.3

VISTEON CORP

4,293

1.3

1.2

11.0

10.1

22.0

19.4

Mean

1.2

1.1

8.7

7.6

18.9

15.9

Aerospace

FACC AG

1,061

1.4

1.3

12.2

10.5

24.0

19.2

LATECOERE

668

0.8

0.8

10.9

10.7

17.2

15.1

SENIOR PLC

1,700

1.4

1.3

11.2

10.2

21.1

19.2

TT ELECTRONICS PLC

526

1.3

1.2

11.5

11.5

22.8

20.1

Mean

1.2

1.2

11.5

10.7

21.3

18.4

Source: Bloomberg, Edison Investment Research. Note: Prices at 15 January 2018.

Applying the weighted average P/E multiple of 18.6x to Carclo’s FY18e (to March 2018) EPS of 9.2p gives an indicative valuation of 170.8p/share. We think that Carclo’s relatively small market capitalisation compared to the majority of peers merits some discount to this. The share price has dropped by over 30% since the recent trading update. We believe that the discount of over 100% to our indicative valuation of 170.8p implied by the share price following this fall is far 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 (which is consistent with our previous treatment) gives a valuation range of 145-154p (see Exhibit 3). Our valuation range was previously 177-187p. 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 145-154p implies a year one EV/EBITDA range of 8.4-8.8x (see Exhibit 2), which is close to the peer group blended year one EV/EBITDA multiple of 9.5x.

Exhibit 3: SOTP calculation

Division

% FY18e EBIT

P/E

% FY18e EBIT

EV/EBITDA

CTP

46.9%

18.0x

46.9%

10.0x

LED

47.9%

18.9x

47.9%

8.7x

Aerospace

5.2%

21.3x

5.2%

11.5x

Weighted average P/E

18.6x

9.5x

FY18e EPS

9.2p

Undiscounted indicative value

170.8p

Indicative value applying 10% discount

153.7p

Indicative value applying 15% discount

145.2p

Source: Edison Investment Research

Carclo’s share price has dropped by over 30% following the trading update. We believe that newsflow demonstrating that the contract delays besetting both divisions are over should help close the valuation gap, with potential for further share price appreciation beyond this as Carclo begins to deliver on the mid-volume automotive lighting programmes.

Exhibit 4: Financial summary

Year end 31 March

£000s

2016

2017

2018e

2019e

2020e

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

118,974

138,282

140,631

147,655

157,759

EBITDA

 

 

13,840

17,033

15,781

18,532

20,080

Operating Profit (before amort. and except).

10,034

12,498

10,781

13,032

14,080

Intangible Amortisation

0

0

0

0

0

Exceptionals

(4,857)

(541)

0

0

0

Other

0

0

0

0

0

Operating Profit

5,177

11,957

10,781

13,032

14,080

Net Interest

(1,282)

(1,479)

(1,850)

(2,000)

(2,000)

Profit Before Tax (norm)

 

 

8,752

11,019

8,931

11,032

12,080

Profit Before Tax (FRS 3)

 

 

3,895

10,478

8,931

11,032

12,080

Tax

(1,708)

(2,496)

(2,233)

(2,868)

(3,262)

Profit After Tax (norm)

6,692

8,418

6,698

8,164

8,819

Profit After Tax (FRS 3)

2,187

7,982

6,698

8,164

8,819

Average Number of Shares Outstanding (m)

66.2

69.4

73.0

73.0

73.0

EPS - normalised (p)

 

 

10.1

12.1

9.2

11.2

12.1

EPS - normalised fully diluted (p)

 

 

10.1

12.1

9.2

11.2

12.1

EPS - IFRS (p)

 

 

3.3

11.5

9.2

11.2

12.1

Dividend per share (p)

0.9

0.0

0.0

3.9

4.2

EBITDA Margin (%)

11.6

12.3

11.2

12.6

12.7

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

8.4

9.0

7.7

8.8

8.9

BALANCE SHEET

Fixed Assets

 

 

66,660

80,085

87,885

91,685

94,485

Intangible Assets

20,257

26,323

26,623

26,923

27,223

Tangible Assets

36,597

43,423

50,923

54,423

56,923

Investments

9,806

10,339

10,339

10,339

10,339

Current Assets

 

 

59,635

80,187

77,545

83,096

86,876

Stocks

15,596

19,250

21,962

21,845

22,475

Debtors

26,647

38,468

40,070

40,858

41,061

Cash

16,692

22,269

15,313

20,194

23,140

Other

700

200

200

200

200

Current Liabilities

 

 

(33,428)

(46,884)

(45,444)

(46,982)

(47,939)

Creditors

(22,732)

(27,996)

(26,556)

(28,094)

(29,051)

Short term borrowings

(10,696)

(18,888)

(18,888)

(18,888)

(18,888)

Long Term Liabilities

 

 

(60,000)

(69,125)

(69,125)

(69,125)

(69,125)

Long term borrowings

(30,746)

(29,406)

(29,406)

(29,406)

(29,406)

Other long term liabilities

(29,254)

(39,719)

(39,719)

(39,719)

(39,719)

Net Assets

 

 

32,867

44,263

50,861

58,675

64,296

CASH FLOW

Operating Cash Flow

 

 

13,933

8,916

9,027

18,398

19,205

Net Interest

(861)

(762)

(750)

(900)

(900)

Tax

(1,253)

(2,086)

(2,233)

(2,868)

(3,262)

Capex

(9,593)

(7,683)

(13,000)

(9,500)

(9,000)

Acquisitions/disposals

0

(5,672)

0

(250)

(250)

Financing

20

7,616

0

0

0

Dividends

(1,821)

(596)

0

0

(2,847)

Net Cash Flow

425

(267)

(6,956)

4,880

2,946

Opening net debt/(cash)

 

 

24,518

24,750

26,025

32,981

28,100

HP finance leases initiated

0

0

0

0

0

Other

(657)

(1,008)

0

0

0

Closing net debt/(cash)

 

 

24,750

26,025

32,981

28,100

25,154

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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) 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. 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Frankfurt +49 (0)69 78 8076 960

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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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) 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. 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Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

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New York +1 646 653 7026

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US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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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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