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Carclo hit by labour and pension woes

Technical plastics continue to underperform, but we need to add labour issues and pension shortfalls into the equation
November 14, 2018

Carclo (CAR) shareholders have been forced to endure a January profit warning, a management reshuffle and an aborted takeover bid by Consort Medical (CSRT), none of which were likely to have featured in the board’s list of priorities this time last year. To cap it off, they now have some pretty uninspiring half-year results to take on board.

IC TIP: Hold at 80p

Group results suffered largely as a consequence of the underperformance in the technical plastics division, exacerbated by delays to three customer medical programmes and difficulties in maintaining adequate headcount at the division’s largest plant in Pennsylvania. All this fed through to a 22 per cent decline in the division's underlying operating profit, to £2.53m. 

Production inefficiencies in Carclo’s LED technologies also weighed on profits, although Wipac, its premium car lighting business, has secured a number of new programmes, including two mid-volume electric vehicle deals. The company expects that a new North American production facility will be needed for one of these. Low unemployment could pose a problem here too.

The group continues to struggle with its defined-benefit (DB) pension funding shortfall. It contracted by £200,000 to £24.5m during the period, but a further hit on pension liabilities is expected following a recent High Court judgement on the equalisation of guaranteed minimum pensions.

Broker Peel Hunt has lowered its pre-tax profits forecast by 4 per cent to £10.5m and predicts earnings per share of 11p (from £9.1m and 9.8p in FY2018).

CARCLO (CAR)    
ORD PRICE:80pMARKET VALUE:£58.4m
TOUCH:79.8-81p12-MONTH HIGH:145pLOW: 62.4p
DIVIDEND YIELD:NILPE RATIO:8
NET ASSET VALUE:76p*NET DEBT:64%
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201772.24.64.5nil
201871.53.43.5nil
% change-1-26-22-
Ex-div:nil   
Payment:nil   
*Includes intangible assets of £25.8m, or 35p a share