Carclo’s solid growth story

Carclo, the company that makes touch screen technology and lighting for supercars, is hoping that its diverse product range can help it grow further.

The fully listed company has a long history, having been founded in 1924 as a manufacturer of ‘card clothing’, a consumable wire product used in the combing of textile fibres prior to spinning.

It was not until 1997 that the company changed direction, taking an interest in the technical plastics market. The company has made a name for itself in recent years due to the work being undertaken in the touch screen side of its business, involving the laying down of very fine copper lines on plastic substrates using its  Conductive Inkjet Technology (CIT).

The technology, which was initially developed for use in the traditional printing industry, allows users of touch screen phones such as the iPhone to navigate its sensitive functions using their fingers.

The group signed a major agreement in 2009 with US semiconductor giant and smartphone specialist Atmel that was to help Carclo bring its CIT technology to market as a touch sensor, with the Atmel agreement including a pre-payment of $10 million.

Robert Brooksbank, finance director at Carclo, notes that the company’s technology is to be used in a ‘new-concept smartphone’, although he adds that he is unable to reveal who the customer is and what the exact nature of the new phone will entail.

However, while its touch screen business has understandably excited investors, there is more to the Carclo story. Its diagnostic solutions business develops devices that test for assays, with the technology originally used to test for deep-vein thrombosis.

Meanwhile, its technical plastics division makes a number of specialised products in the medical and optical industries, with Carclo also manufacturing a number of LED units.

Furthermore, there is a precision products division, which contains three businesses. The most interesting of these is probably Wipac, which produces exterior lighting for supercars such as Lamborghini and Ferrari, with Brooksbank noting that there are ‘very few companies operating in this area’.

In its results for the year to March, Carclo delivered solid growth. Pre-tax profits increased by 46.5 per cent to £6.8 million while sales rose 9.2 per cent to £88.6 million. EPS increased by 62.7 per cent to 9.6p while the full-year dividend rose by 10 per cent to 2.2p a share.

Across its divisions, technical plastics revenue climbed from £51.5 million to £55.8 million, while its precision products division grew turnover by 8.5 per cent to £33.1 million. The company declared that it expects new business to come from ‘supporting our global customers in accessing the local Chinese market as opposed to using China as a low-cost manufacturing base for export’. Brooksbank notes that the Chinese business plan is ‘changing’, with the company currently experiencing ‘very high increases in wage rates’.

Looking forward, for the coming year – while Brooksbank opines that ‘we want to achieve growth in our technical plastics division’ – the primary target is to ‘achieve maiden EBIT’ for its CIT technology.

Analysts at Brewin Dolphin are forecasting pre-tax profits of £8.8 million on sales of £93.5 million for the year to March 2012. In 2013 the broker sees profits rising to £11 million on revenue of £98.5 million. EPS of 11.4p and 14.3p are forecast for 2012 and 2013. A dividend of 2.4p and 2.6p a share is pencilled in for the same periods. While highly rated, the shares have been on an impressive growth trajectory, having increased by more than six times since 2009.
An interesting business, the excitement centres on its prospects in the fast-growing smartphone market, which is likely to see further gains via customers in emerging markets in Asia and Africa, who are mainly still using older mobile phone technology but are looking to upgrade in the next couple of years.

Having already won the confidence of Atmel, we think the company could have much further to go, with its older businesses helping to fund the development of its new technology. Buy.