Ventilation company Volution is a global operator with strong upside potential, argues Mark Watson-Mitchell.
We will have to wait for three months or so to find out just how well the current year has progressed for Volution. However, it doesn’t seem that the Brexit hassle has impacted this ventilation company.
That is because the Volution Group (LON:FAN) now has a global spread of operations. And looking at broker estimates for its revenue and profits makes me consider that its shares are really a very attractive buying proposition.
If I list its current brands you will recognise many of them in regular use. Vent-Axia, Manrose, Diffusion, National Ventilation, Airtech, Breathing Buildings, Fresh, PAX, VoltAir, Welair, Kair, Air Connection, inVENTer, Ventilair, Torin-Sifan, Simx and Ventair.
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Volution Group operates through two main divisions: the Ventilation Group, which primarily supplies ventilation products for residential and commercial construction applications in the UK, the Nordics, Central Europe and Australasia; and Torin-Sifan, which supplies motors, motorised impellers, fans and blowers to OEMs of heating and ventilation products for both residential and commercial construction applications worldwide.
The Ventilation Group’s residential products encompass a broad range of products designed to suit a variety of budgets and applications, ranging from unitary extractor fans (including for use in bathrooms and kitchens) to significantly higher value ‘whole building’ systems.
The Ventilation Group’s commercial products encompass a variety of extractor fans, as well as mechanical heat recovery units, air handling units, fan coils and hybrid ventilation solutions. In addition, it also produces a number of products designed for use in industrial applications.
The Ventilation Group’s remaining products encompass a number of non-ventilation products, including heating products (such as underfloor heating, heated towel rails, radiators, and storage and panel heaters), cooling products (such as wall, box and tower fans, and portable air conditioners), hygiene products (such as hand dryers and insect killers), lighting, door chimes and a range of sensors, controllers and ducting which are installed together with many of the Ventilation Group’s residential and commercial ventilation products.
Most of the other products are produced by other manufacturers and sold by the Ventilation Group under its own brands, as private label products, or under the brands of the products’ manufacturers.
The Torin-Sifan side manufactures a range of blowers and motors for the heating and ventilation industry. Its products include direct and belt-drive fans, fandecks, double inlet centrifugal blowers, motorised impellers and combustion blowers.
Since the company announced its interim results in late March, it has acquired Ventair in Australia, which complements its New Zealand based Simx business. It is its international spread that appeals to me because it does give the group real balance across its global portfolio of brands and operations.
The £15m Aussie acquisition was totally in line with its strategy of selectively acquiring value-adding businesses in new and existing markets and geographies, across the residential and commercial ventilation markets.
The group was formed in December 2002 through a buy-out from Smiths Group plc of its air movement and cable management divisions. It subsequently changed ownership twice, with TowerBrook Capital Partners becoming its Controlling Shareholder in February 2012.
The company listed in June 2014. However, in October 2016 TowerBrook sold its outstanding shareholding by way of a Placing and it no longer holds shares.
Looking at the shareholder list, it now includes PrimeStone Capital (13.14%), Standard Life Aberdeen (6.78%), FMR (6.40%), Baillie Gifford (5.70%), Artemis Investment Management (5.07%) and UBS Global Asset Management (3.23%).
In the year to end July 2018 the group reported revenue of £205.68m and pre-tax profits of £16.74m, with earnings coming out at 14.50p and a dividend of 4.44p per share.
Current year broker estimates suggest that the five recent acquisitions will help to push sales up to £236.74m and profits to £40.21m, with earnings of 15.97p and a dividend of 4.80p.
For FY2020, revenue of £247.72m and profits of £42.79m could see earnings of 16.97p and a dividend three times covered at 5.11p per share.
With its shares standing at 174p, the whole group is now capitalised at just £344m. Trading on a mere 12 times historic and only 10.9 times current year earnings make them very attractively priced, in my opinion. I believe a share price of 250p looks achievable within the next year or so.