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Carclo – after dividend failure, an acquisition & placing…

By Steve Moore | Friday 14 October 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Having recently cancelled its full-year dividend after the ex-dividend date, specialised plastics company Carclo (CAR) has now announced an acquisition! (along with a trading update and placing).

The acquisition is of US company Precision Tool & Molding, LLC for an initial $5.5 million (circa £4.5 million), with further deferred consideration of up to $1 million. The business provides high precision mould tooling, injection moulding and assembly for the medical device industry.

Carclo Chief Executive Chris Malley emphasises “the combination of Carclo Technical Plastic's knowledge and experience of high volume manufacturing and customer validation protocols, together with PTD's expertise in toolmaking and product prototyping, will significantly widen Carclo Technical Plastic's offering to our combined customer base”, though “the board expects the acquisition to be earnings neutral for the group in the first full financial year following completion”.

In order “to repay the short-term debt facility used to satisfy the completion consideration as well as to fund any additional working capital requirements in respect of the acquisition” is a placing – though this to raise £8 million. The company stating remaining proceeds to “be utilised to reduce the group's net debt position and to fund the group's investment plans, including at its Wipac super and luxury car lighting business”.

Hmmm. A 120p per share placing price compares to a 157p share price before the end of August dividend shocker and prior 128p closing price – and sees the shares currently down to below 125p.

A trading update includes that “trading performance remains in line with the board's expectations for the year ending 31 March 2017” and notes potential currency benefit as “approximately two thirds of group revenue is currently derived from outside the UK”.

However, I previously concluded there credibility now needing to be regained here – and this remains my view. I’ll review 15th November-scheduled results for the company’s half year ended 30th September with interest but, for now, continue to avoid.

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