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Carclo banks on 'technical' margins

The specialist manufacturer is looking at a stronger second half as margins recover at the technical plastics division
November 14, 2017

Half-year figures reaffirm that the resolution of operational issues at Carclo’s (CAR) technical plastics division is under way. Although underlying profit fell on the 2016 comparative, and revenue flatlined once currency and acquisition effects are factored in, the division’s operating margins are now expected to “improve significantly”. Following the successful expansion of a production facility in India, and expectations of a higher proportion of design and tooling profits recognised in the second half, that optimism appears well grounded.

IC TIP: Buy at 145p

A 16 per cent rise in underlying profitability in the LED technologies business partially offset the difficulties within technical plastics and the group’s smaller aerospace arm, but underlying earnings were still constrained. The LED division is also set fair for the remainder of 2018 as several pre-development programmes  are expected to translate into project awards over the second half. “Design, development and sub-contract tooling revenues” were ahead of management expectations, while the ability to meet the build up in orders has been met by increased warehousing capacity in Buckingham.

Peel Hunt forecasts adjusted pre-tax profit of £12.7m for the March 2018 year-end, leading to EPS of 13p, against £11m and 12.1p in 2017.

CARCLO (CAR)    
ORD PRICE:145pMARKET VALUE:£106m
TOUCH:140-150p12-MONTH HIGH:180pLOW: 113p
DIVIDEND YIELD:nilPE RATIO:14
NET ASSET VALUE:67p*NET DEBT:60%
Half-year toTurnover   Pre-taxEarnings perDividend
30 Sep (£m) profit (£m)share (p) per share (p)
201663.34.835.60.9
201772.24.554.5nil
% change+14-6-20-
Ex-div:-   
Payment:-   
*Includes intangible assets of £25.5m, or 35p a share