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Volex fails to strike a chord

Earnings, sales up significantly but interim numbers trigger selloff
Volex fails to strike a chord
  • Consumer, EV sales drive sales and profit uplift 
  • Logistics headaches but higher costs passed on

Volex (VLX) and its investors had a different view of the first six months of its financial year: the company said it was on track to hit full-year forecasts and handed down a much-increased operating profit on the year for the 26 weeks to 3 October, but saw its share price tumble by nearly 10 per cent. 

Executive chairman Nat Rothschild said the company had “successfully managed” global supply chain challenges and Covid-19 restrictions in the period. He said Volex would continue with its growth strategy, through expanding existing factories and buying adjacent companies. 

The wiring company, which sells into the consumer electronics, electric vehicle (EV), industrial technology and medical markets, did see some impact from higher commodity prices - copper being a key input cost - but largely passed these on to customers. 

Additionally, despite the auto sector’s heavy supply chain issues, Volex saw its sales into the sector triple compared to last year, to $45m (£33.6m). Volex makes charging plugs rather than components for the cars themselves, so is benefiting from the quick-growing infrastructure around EVs. The UK alone needs 600,000 public chargers and 11m private chargers before 2040 to meet forecast EV needs. 

Despite this growth, consumer electricals are still the key focus for Volex, and sales in this area climbed from $73m last year to $127m in the first half. This was helped by the acquisition of another power cord manufacturer, DE-KA, at the end of the last financial year, and passing the record copper prices onto buyers. 

Anyone exposed to global logistics at the moment will face some challenges, though: Volex saw this in its margins, while it has boosted inventory “significantly” because of longer lead times and shipping time. Its underlying operating margin fell from 10.3 per cent to 9.3 per cent. HSBC analyst Michael Tyndall said he expected this margin to remain around 10 per cent in the long term, with growth driving profits higher. 

Executive chairman Nat Rothschild said the company had “successfully managed” global supply chain challenges and Covid-19 restrictions in the period. He said Volex would continue with its growth strategy, through expanding existing factories and buying adjacent companies. 

Net debt of $22m, excluding leases, was well ahead of HSBC’s forecast of $4m, because of a $19m working capital movement. The company said this was also down to longer lead times. 

It’s hard to argue against the proposition that consumers will keep buying electronics. The trouble might be getting those products to them, but Volex is not alone in facing that challenge. Buy. 

Last IC View: Buy, 367p, 17 June 2021

VOLEX (VLX)    
ORD PRICE:398pMARKET VALUE:£ 628m
TOUCH:397-398p12-MONTH HIGH:495pLOW: 244p
DIVIDEND YIELD:0.6%PE RATIO:20
NET ASSET VALUE:124¢*NET DEBT:20%
26 weeks to 3 OctTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
202020314.410.21.10
202129319.411.01.20
% change+45+35+8+9
Ex-div:18 Nov   
Payment:14 Dec   
£1 = $1.34 *Includes intangible assets of $99.7m, or 63¢ per share