Volution Group has a fair wind behind it

Volution Group’s biggest deal might look expensive at a blended 11 times earnings but it could prove quite the opposite, writes Mark Watson-Mitchell. 

Just a week before Christmas this £564m valued group concluded a deal that will certainly bring a fresh burst of wind into its corporate framework.

Volution Group (LON:FAN) is a leading international designer and manufacturer of energy efficient indoor air quality solutions.

In its biggest self-funded deal to date, the group acquired 75% control of ClimaRad, the market leader for decentralised ventilation systems in the Netherlands. The balance 25% will be purchased in 2025 on a criteria conditional basis.

The total cost by then could well be around £54m.

Buying and building internationally

This deal is part of the ‘fan’ group’s corporate growth strategy in buying value-added businesses in new markets and geographies.

The group’s strategic purpose is to sustainably provide healthy indoor air.

The expanding group has international aims. As market leaders in residential and commercial ventilation solutions, it already has operations not only in the UK but also in the Nordics, Belgium, the Netherlands, New Zealand and Australia.

Dutch deal could help to open up Germany

The ClimaRad deal looks to be a potential winner. It has its own low-cost manufacturing facilities in Sarajevo in Bosnia-Herzegovina. 

It offers cross-selling opportunities for the enlarged grouping, especially into the German market.

Internationally it has market-leading brands

The Volution Group, as a leading international designer and manufacturer of energy efficient indoor air quality solutions, takes in 17 key brands across its three operating regions.

In the UK it is best well known for its Vent-Axia products, while its other brands include Manrose, Diffusion, National Ventilation, Airtech, Breathing Buildings, and Torin-Sifan.

Over in Continental Europe its marketed brands take in Fresh, Air Connection, PAX, inVENTer, VoltAir, Kair, Ventilair, and now ClimaRad.

In the Australasian territories its brands are Simx, Manrose and Ventair.

Last year to end-July the group’s sales breakdown on a territory basis were 51.5% UK at £111.5m, then 34.5% from £74.7m in Continental Europe and finally Australasia contributed 14% with £30.4m sales.

Good institutional following

There are nearly 200m shares in issue. 

The larger holders include PrimeStone Capital (9.95%), Fidelity Management & Research (8.91%), Baillie Gifford & Co (5.73%), Franklin Templeton Fund Management (5.00%), Standard Life Aberdeen (4.59%), and Artemis Investment Management (3.05%).

Despite Covid-19 it is doing well

Brokers Liberum Capital are estimating that for the year to end-July 2021 the enlarged group could see sales rise from £217m to £232m, generating an uplift in pre-tax profits to £45m (£31.3m), worth 17.1p in earnings and easily covering a 5.1p dividend per share.

Going forward their estimates for 2022 and 2023 respectively, see sales revenues of £247m then £258m, with £49.9m then £52.6m of pre-tax profits. The fully diluted earnings would then be 18.7p and 19.7p, with 5.6p then 5.9p per share in dividends for 2022 and 2023 respectively.

The brokers see the expanded group’s net debt falling from around £60.7m at this coming year end to just £7m by July 2023. That is impressive.

Now 301.5p – I see 350p soon

Those estimates give added investment appeal to the group’s shares, now 301.5p. 

Interestingly they rose to 299p just ahead of the acquisition announcement. 

In late February the enlarged group will announce its interim results for the six months to the end of this month.

In my view, the shares will soon climb through that year’s high and proceed to scale upwards with 350p being an easy goal.

(Profile 23.05.19 @ 174p set a Target Price of 250p*).