Carclo (CAR)
03/31/2005
 Carclo (CAR), a diversified engineering company, designs and manufactures plastic components and specialist wire products. The company has faced several challenges in recent years including declining demand in key businesses, and increasing competition from low cost suppliers. As a result management was forced to restructure the business and shift manufacturing capacity to lower cost regions. With demand now recovering we believe Carclo is well positioned for margin and earnings growth.
The company's main technical plastic division is performing solidly, and has been able to successfully pass on increases in the price of polymers, a key raw material. We expect that further growth in the medical business will continue to underpin earnings in this division. In addition, the group has recently secured a number of new contracts.
Carclo's automotive division is performing robustly on the back of increased demand for specialist lighting. Whilst the division is exposed to the rising cost of steel and other raw materials, we are confident these will be more than offset as production and assembly is progressively outsourced to lower cost regions.
Meanwhile earnings at the small specialist wire business should be boosted by a new facility in China. The low-cost manufacturing operation will also improve access to the largest and fastest growing market for card clothing in the world.
We expect Carclo's long-term earnings growth will be driven by a commitment to innovation. As an example, we believe the company's 50:50 joint venture "Conductive Inkjet Technology" (CIT) will significantly bolster shareholder value. CIT has developed and patented an innovative process to digitally print pure metal onto plastic. The most promising application of this technology is Radio Frequency Identification which will replace bar coding in the retail environment in the next three years.
Notwithstanding recent gains, Carclo continues to trade at historically low levels and retains robust upside potential in our opinion. We are encouraged by the progress that has been made in restructuring the business in recent years, and we are excited by the prospects for long-term earnings growth.
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