Volex (VLX) has lost a quarter of its value after falling victim to a vicious price war in Asia and customer product delays. Even with $7m (£4.4m) of cost cuts, and after stripping out $5.8m of redundancy costs and write-downs, the power cable and electrical components supplier made just $98,000 profit during the first half. It's axed the dividend, too, and while a transformation plan should at least stabilise the business, investors are being asked to place a lot of faith in the new management team.
Bosses have already restructured the company into two divisions. Hardest hit was the new power cable unit where high fixed costs meant a 24.9 per cent dive in sales and a 58 per cent slide in underlying operating profit to $3.9m. But new chief executive Christoph Eisenhardt has spent his first four months in charge improving relations with existing clients and courting potential new ones, and Volex is tightening up on design costs. There's potential at the higher-margin data division, too. Here, cost-cutting easily offset a double-digit drop in sales and profit grew 7 per cent during the period to $5.7m. Given high operational gearing, management is confident that a resumption of volume growth will rapidly inflate the bottom line.
Inevitably, full-year earnings forecasts have been slashed and broker Investec Securities now expects adjusted pre-tax profit of just $3.1m, down from $10.1m last year, giving adjusted EPS of 3.6¢ ($11.2¢ in 2013).
VOLEX (VLX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 87p | MARKET VALUE: | £55.2m | |
| TOUCH: | 87-88p | 12-MONTH HIGH: | 165p | Low: 82p |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | na | |
| NET ASSET VALUE: | 56¢* | NET DEBT: | 116% | |
| Half-year to 29 Sep | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2012 | 249 | 2.24 | 3.10 | 2.00 |
| 2013 | 197 | -4.11 | -7.30 | nil |
| % change | -21 | - | - | -100 |
*Includes intangible assets of $7.8m, or 12¢ a share £1=$1.60 | ||||
