Volex – Energy Equipment Specialist Has A Positive Outlook

Yesterday’s announcement by Volex (LON:VLX) of its Final Results, for the year to end March, were much as presaged by the Trading Update issued two months ago.

In reaction to the latest news, however, its shares fell back 33p at one stage to as low as 321p, before ending the day just 23p lower at 331p, which could now offer medium-term investors a very useful buying opportunity.

The Business

The £601m capitalised Basingstoke-based group is a global leader in integrated manufacturing for performance-critical applications and it is a supplier of power and data transmission products.

The company serves a diverse range of markets and customers, with particular expertise in cable assemblies, higher-level assemblies, data centre power and connectivity, electric vehicle charging, and consumer electricals.

Employing over 14,000 people, the group has a global manufacturing and local support presence covering some 28 advanced manufacturing facilities across the Americas (Canada, Mexico, USA), EMEA (Germany, Ireland, Macedonia, Netherlands, Poland, Romania, Slovakia, Türkiye, UK) and Asia-Pacific (Australia, China, India, Indonesia, Japan, Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam).

With its sales teams located around the globe, combined with authorised distribution partners, the group has the ability to service its customers’ needs and deliver its products to Original Equipment Manufacturers and Electronic Manufacturing Services companies worldwide.

Operating Divisions

Volex operates across five divisions: Complex Industrial Technology, Consumer Electricals, Electric Vehicles, Medical, and Off-Highway / Specialist Automotive.

The critical products and services that it offers are integral to the increasingly complex digital world in which we live, providing power and connectivity from the most common household items to the most complex medical equipment.

Complex Industrial Technology – it combines its leading high-speed data centre products with complex harnesses and complete assemblies for sophisticated industrial technology customers in diverse markets.

Consumer Electricals – it is the partner of choice for premium electronics and domestic appliance manufacturers with a truly global power cord business.

Electric Vehicles – it works with leading manufacturers in the Electric Vehicles space who value its significant technical expertise and experience in the sector.

Medical – it delivers complex assemblies that are used to deliver critical power, control, and data connectivity for medical devices.

Off-Highway / Specialist Automotive – it manufactures custom ruggedised wire harnesses and battery cables for every type of off-highway and specialist vehicle.

Management Comment

Executive Chairman Nat Rothschild stated that:

“We have doubled our revenues in three years, while maintaining impressive operating margins within our target range of 9-10%.

This demonstrates the success of our strategy to diversify our business, increasing the share of our sales involving complex products and managing costs effectively as we grow.

The transformative acquisition of Murat Ticaret has further enhanced our capabilities and solidified our market position.

Our strategic investments in FY2024 and those planned for FY2025 will expand capacity at key locations to meet anticipated future customer demand, positioning Volex for further growth by leveraging our dominant positions in attractive sectors.

With leading positions in our end markets, strong cash flow and robust financial position, we are ideally positioned to capitalise on the significant growth opportunities available to us.

Our acquisition pipeline remains promising, alongside incremental organic initiatives, underscoring our commitment to achieving our strategic goals.

Having started the new fiscal year with strong customer demand, we are confident of making further progress in FY2025 and we are firmly on track to achieve our five-year revenue target of $1.2 billion by the end of FY2027.”

The Equity

There are some 181.62m shares in issue.

The largest shareholding is that of Executive Chairman Nat Rothschild’s NR Holdings, with 25.62% of the equity.

Other large holders include Investec Wealth & Investment (5.42%), Ruffer (4.91%), Abrdn Investment Management (3.61%), Tellworth Investments (3.14%), Herald Investment Management (2.80%), Canaccord Genuity Wealth (2.64%), Santander Asset Management (2.05%), Amati Global Investors (1.66%), and Hargreaves Lansdown Asset Management (1.34%).

Brokers’ Views

At Peel Hunt its analysts Andrew Humphrey, Lauren Baker Iguaz, and Harry Phillips have a Buy recommendation on the group’s shares, looking for 400p.

Their estimates for the current year to end March 2025 are for revenues of $1,019m ($913m), with adjusted pre-tax profits of $88m ($77m), generating earnings of 37.3c (33.0c) and easily covering a dividend of 5.4c (4.8c) per share.

For the 2026 year they see $1,105m sales, $96m profits, 40.8c earnings and a dividend of 5.8c per share.

The analysts consider that the current rating for the group’s shares is undemanding and they see greater market conviction as the current half-year progresses.

Over at HSBC, analyst Stephan Klepp is a lot more bullish, upping his Price Objective to 500p as he rates the shares as a Buy.

My View

There was a good market reaction to the company’s Trading Update in mid-April when its shares lifted from 276p to 319p overnight.

In the last year they have ranged from 264.50p to the 365p at which they peaked towards the end of last month.

Last night they closed 6.5% off on the day at 331p, at which level I would suggest that medium-term investors should add some of the group’s shares to their portfolios.

I now set an early Target Price of 400p.

(Profile 27.06.24 @ 331p set a Target Price of 400p)