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I typically hold shares for a few weeks or months. But one notable exception is Carclo (CAR), a technology-driven plastics group. I have held these shares for several years.
I have broken my trading habit as Carclo has several new products in the pipeline – and one particularly excites me: a process to print virtually invisible copper circuits on different surfaces, such as film or plastic. Think of it as “printed electronics”. Success with this new technology has the potential to make me an investment hero. Failure would leave me feeling bruised.
Chipmakers for smartphones and tablet computers are the initial target customers for this innovative process. They can use Carclo’s printed film to produce sensors for touchscreens that are superior to current offerings – and less expensive to produce.
To exploit this opportunity, Carclo has partnered with US chip group Atmel, the dominant touchscreen chipmaker. However, this industry is intensely competitive and both companies are quite secretive about their progress to date.
For more than a year, fans of the company have been forced to rely on information fragments to deduce if “fine line printing” can achieve commercial success. Everyone has been waiting for an unambiguous signal.
Now, the end-game is in sight. There is a strong likelihood that important information will be announced in the next eight weeks. I expect the news to be positive but, as always when investing, it pays not to count chickens until they are hatched.
My view is based on several recent reports.
One said that Carclo is providing film samples to a growing number of major manufacturers. Samples are traditionally provided for new products still on the drawing board. But Carclo is also providing samples for existing products. This suggests to me that some manufacturers are considering replacing existing chips with Carclo’s less expensive alternative.
Another news fragment revealed that Carclo is building a second film production line capable of producing enough film for an additional 250m smartphone display screens per year. It also announced that three new assembly lines will be up and running by mid-year. Each is owned and operated by a third party, probably Atmel. These lines incorporate Carclo’s processed film into touch sensors that power smartphone and computer screens. Each line can produce 50-60 million sensors per year.
Such huge figures suggest that some very big bets have been made on Carclo’s innovative technology.
But Carclo and Atmel are yet to supply investors with a critical piece of information: have any orders been booked? Happily, the news blackout will soon end.
Next week will bring an interim management statement, and Carclo anticipates being able to announce a firm order near the end of March. My suspicion is that Motorola will be the customer.
So, one way or another, all will be revealed.
If Carclo’s technology takes off, I calculate significant profit potential. Carclo refuses to issue projections, but my own research suggests an average profit of around 9p for each telephone or tablet computer that uses a Carclo-linked chip.
With all three new lines up and running later in 2012, a back-of-the-envelope calculation suggests profits near to £5m a year if they are at 33 per cent of capacity – not bad for a company whose total pre-tax profits last year were £6.8m.
Of course, many uncertainties remain. Other companies are working on competing technologies, and manufacturers may look elsewhere.
But Carclo is not a one-trick pony: its technical plastics division is growing and supercar lighting is another profit centre.
One final point intrigues me. Carclo is classified in the chemicals sector on the stock exchange, where the average price-to-earnings ratio is around 15. Companies in the technology hardware & equipment sector have p/e ratios closer to 60. This suggests that, if Carclo’s new venture is successful and it changes sector, its shares have the potential to rise by a substantial amount.
Stock market historian David Schwartz is an active short-term trader writing about his own trades