Today I am detailing the exceptional earnings prospects of two auto parts giants.
Investor appetite driving higher
Shares in Carclo (LSE: CAR) have gone absolutely gangbusters during Wednesday trading, and the business was recently dealing 10% higher from the previous close. Investors have continued to pile in following Tuesday’s bubbly trading update, giving the industrial chemicals play — which had conceded a third of its value since May up until yesterday’s release — rare reason for cheer.
Carclo advised that total revenues leapt 17% during April-September, to £57.2m, a result that propelled underlying pre-tax profit to £41m, an 80% rise.
The company had its LED Technologies arm — which builds lights for the automotive industry — to thanks for its stratospheric sales surge, with revenues here galloping 48% higher in the period to £21.2m. And I expect revenues to continue to climb as auto sales, and in particular those across the ‘luxury’ sector, march higher in the years ahead.
And despite today’s stellar share price rise, I believe that Carclo still provides terrific value for money. The West Yorkshire business is expected to experience a 20% earnings blast in the 12 months to March 2016, resulting in an ultra-low P/E ratio of 11.7 times. And this moves below the bargain barometer of 10 times for fiscal 2017, a further 21% bottom-line bounce pushing the reading to just 9.7 times.
These brilliant earnings predictions are anticipated to drive dividends significantly higher, too. Last year’s payment of 2.75p per share is predicted to jump to 3p in 2016, yielding a handy 2.7%. And a projected dividend of 3.3p per share for the following year pushes the yield to 3%.
Revenues poised to accelerate
Life has been similarly tough for auto and aero parts supplier GKN (LSE: GKN) during 2015, the Redditch business having surrendered 18% of its stock price value during the past six months alone. On top of fears over slowing Chinese car demand, the manufacturer has been dented more recently by the impact of Volkswagen’s emissions scandal on its sales outlook.
While it is true the German car giant is a key client for GKN, recent broker analysis suggests that the impact of declining VW sales on the UK firm’s top line is likely to be negligible. Indeed, I for one believe GKN’s top-tier supplier status to the world’s largest carbuilders makes it a great growth picks for the years ahead, while galloping demand for passenger aircraft should drive demand for its aerospace products, too.
Despite an expected 10% earnings slip in 2015 GKN changes hands on a mega-low P/E rating of just 10.6 times. And this number drops to 10.4 times for next year thanks to predictions of a 3% bottom-line uptick.
In addition, predicted dividends of 8.8p and 9.3p per share for 2015 and 2016 correspondingly carry chunky yields of 3.1% and 3.3%. I believe both GKN and Carclo are great engineering picks for savvy value seekers.