A Swedish company associated with activist investor Peter Gyllenhammar has taken a 10% stake in fully listed healthcare plastics and LED automotive lighting business Carclo (LON:CAR).
Duroc AB (www.duroc.com) has taken a 10% stake in Carclo, which has been hit by profit warnings, forecast downgrades and management changes. Duroc started building up the stake earlier this month. Institutional investors have been reducing their stakes in the past year.
According to the website of Peter Gyllenhammar AB, which was previously known as Bronsstadet, it owns 79% of Duroc, which is an acquisitions-focused industrial company. Duroc is involved with polypropylene fibres and yarns production, machine tools, diesel engines, railway wheel maintenance and laser coating. Swedish investment company AB Traction is also an investor in Duroc.
Peter Gyllenhammar AB also has stakes in Advanced Oncotherapy, Cambium Global Timberland Ltd, Red Rock Resources and Leeds Group.
Peter Gyllenhammar has built up stakes in many small UK quoted companies over the years. He tends to focus on the underlying value of companies, so he generally prefers industrial businesses with a good balance sheet rather than more IP and intangible-based companies.
Carclo’s 2018-19 profit will be much worse than originally expected, because there has been no improvement in the second half. Chief executive Chris Malley has been demoted and will focus on improving the performance of Wipac. Mark Rollins has become executive chairman until a new chief executive is found.
Wipac has struggled to meet orders for its automotive lighting and costs have been higher than expected. This held back the contribution of the LED technologies division. The technical plastics business is doing better, but it is improving at a slower rate than hoped.
In the year to March 2019, Edison expects pre-tax profit to decline from £9.1m to £6.9m. A recovery to £7.6m, and earnings of 7.6p a share, is forecast for next year.
Lakestreet Capital Partners recently increased its stake in Carclo to 5.3%.
Carclo has good technology and products, but the share price has fallen by more than 90% over the past six years. Debt is a concern and it is expected to rise to £37.8m at the end of March 2019, before falling next year.
The share price is low because of a lack of confidence in the management but the stakebuilding should create greater interest in the shares and that should lead to a share price recovery. Carclo needs to show that it is over its problems and making progress with its business before any greater bounce in the share price.