Technical plastic products supplier Carclo(LSE: CAR) issued a trading update earlier this month, with the group delivering good growth after an anticipated strong second-half performance. Preliminary results for the year ended 31 March won't be officially released until 6 June, but here's why I think this could be a great small-cap stock to tuck away for the long term.
Premium car market
The West Yorkshire-based business is the leading global manufacturer of fine tolerance parts for the Medical, Industrial, Aerospace, and Luxury & Supercar Lighting markets. Approximately three fifths of group revenues are generated from the supply of fine tolerance, injection-moulded plastic components, primarily for medical products. The rest is derived mainly from the design and supply of specialised injection-moulded LED-based lighting systems to the premium car market.
The small-cap firm's latest update confirmed that its Technical Plastics division had delivered yet another year of growth and operating margin improvement, with margins expected to be close to its 10% target. The LED division's Wipac business has continued to win new lighting programmes and has been awarded a second mid-volume project on a vehicle for the hybrid market. The win is important for the division as it endorses the company's strategy to move into the mid-volume sector.
Carclo's performance has been impressive in recent years, with revenues rising year-on-year from £87m in FY 2013, to £119m for FY 2016. According to our friends in the City, this figure is expected to rise by 19% for the financial year just ended to £142m, and by a further 11% to £157m by fiscal 2019. The group has also achieved strong levels of growth in underlying earnings, rising by a massive 94% from just 6.2p per share in FY 2013 to last year's reported figure of 10.1p per share.
Analysts' consensus forecasts suggest that earnings should continue to grow at a healthy rate, rising by a further 55% by FY 2019 to 15.65p per share. This leaves the shares trading on a very attractive valuation of just 11 times earnings for the year to March 2018, dropping to just nine times by FY 2019. I currently view Carclo as a buy for growth hunters who don't mind taking on a higher degree of risk at the small-cap end of the market.
Death and taxes
I'll admit that as a small-cap firm with a market value of just over £100m, Carclo may not be every investor's cup of tea. Generally speaking there is always a higher level of perceived risk that goes hand-in-hand with the promise of untold riches if the share price soars.
For more risk-averse investors, the utilities sector has always been a firm favourite, and for good reason. Along with death and taxes, gas and electricity bills are one of modern life's certainties. Despite increasing competition in the energy market, British Gas owner Centrica(LSE: CNA) remains the UK's largest energy supplier, and continues to reward shareholders handsomely with a generous slice of its profits each year.
This year the Windsor-based group is expected to increase its full-year dividend payout from 12p to 12.35p per share, leaving investors with a generous yield of 5.9%.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.