Carclo in the fast lane
The supercar segment is perilously volatile, but Carclo has muscled its way into a lucrative niche. Should you buy in? Alex Williams investigates.
Carclo just keeps motoring. The specialist plastics maker, which makes LED headlamps for Rolls-Royce and Aston Martin, has announced a second consecutive year of double-digit growth. Full-year sales rose 11% to £119m, ahead of analyst forecasts, while operating profit jumped 29% to £10m. The shares rose 6%, broker finnCap increased its price target and director Peter Slabbert bought 10,000 shares at £1.58.
Carclo's "lights are on full beam", says the Investors Chronicle. As an early mover in LED headlamps, the company is winning several new supercar contracts. It supplies Lamborghini and Bugatti and was recently signed up for Aston Martin's new DB11 model, which is built in Wales. Carclo also makes injection-moulded plastics for the medical sector, from inhalers to medical nozzles, but LED lighting accounts for a third of revenue and more than half of group profits.
Business has not always run so smoothly. Two years ago, Carclo had big ambitions for the development of a new conductive inkjet, used in touchscreen technology. At the time, The Times tipped it as "a very sexy area" and Carclo signed a ten-year contract with a California-based touchscreen specialist, issuing shares to fund the deal. But the investment went "horribly wrong", says John Ficenec in The Daily Telegraph.
Its shares tumbled as the group issued profit warnings and the new business was quickly shutdown, leading to a £32m write-off.Carclo also recently put the brakes on investment in its diagnostics business, which specialised in medical testing. Its latest results included impairments on its patent book, costing £4.9m, while net debt crept higher to £24.8m, as Carclo ramps up investment in its fastest growing businesses.
The company recently expanded its factories in America and India and has opened a new plant in China, tapping into the country's burgeoning medical market. Cheap fuel and dizzy levels of consumer credit have meanwhile helped to push the wider car market.
The supercar segment is perilously volatile, but Carclo has muscled its way into a lucrative niche, pushing up operating margins to 8.4%, versus 5.6% three years ago. The business has bounced back from its touchscreen blunder and Carclo is being rewarded for dumping its poor-performing divisions. But the shares are yet to recover fully. At 14 times forward earnings, Carclo's potential is not yet fully priced in.
Bids and deals
Coats was founded in the 1820s and isalready dominant in industrial thread,making everything from airbag fabricto zips for firefighters. But its bottomline has been hit in recent years bypollution charges and a fine by theEU for fixing prices. Coats has alsosold off non-core businesses, pushingdown sales from £1.8bn to £1.5bn since2009. With no dividend and a pensiondeficit, "there is little to commend theshares", says Investors Chronicle.
However, Coats has turned a corner.As market leader, it has the potential tocash in on a booming middle class inAsia. Clothing sales outpace GDP andCoats' threads hold together one infive garments worldwide. Every monthit makes enough thread to stretch tothe sun. The company has net cash of$242m and high gross margins of 36%.Billionaire investor George Soros hashigh hopes for Coats, owning a stakeof 11%. It is easy to see why.