Electric shock
Carclo's (L:C1Y) recent H1 trading update is encouraging, except for the frustrating news that VW is delaying its flagship Phaeton vehicle, which will now be launched as an all-electric vehicle. The short-term impact on our forecasts is not immaterial, but the share price reaction appears overdone. In our initiation note, we identified Carclo’s earnings multiples discount against its UK comparators with established growth stories. We think the extent of the discount is unjustified and see the long-term story remaining firmly intact, but accept that, although the delay is not of Carclo’s making, it may now take a bit longer to close the gap.
VW (OTC:VLKPY) knock-on
We have reduced our forecasts following the recent H1 trading update (Exhibit 1, overleaf). Technical Plastics is performing well and making good operational progress, particularly with regard to China (new facilities) and Indian operations (planned expansion). Although LED Technologies has been performing well and WIPAC has secured a flagship vehicle programme with a new major customer, this is overshadowed by VW’s decision to delay the launch of its flagship Phaeton luxury vehicle and to launch it as an all-electric vehicle. The premature end of this programme, which we believe to be one of Carclo’s most significant contracts, is the principal driver to our reductions of 8.7% and 8.0% in FY16e and FY17e normalised EPS forecasts respectively.
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