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Volution still targeting margin expansion

The ventilation products supplier did not come through the lockdowns unscathed, but the regulatory dynamic underpinning the investment case remains in place

Volution still targeting margin expansion

Management at Volution (FAN) said that dividends payments would resume during FY2021, but caution was the watchword as the ventilation products supplier confirmed that no final dividend would be paid in the year to 31 July. It may be viewed as a somewhat conservative decision given that the group increased operating cashflow by 23 per cent, while reducing net debt (ex-lease liabilities) by 31 per cent despite the severe disruption brought about by the lockdowns.

IC TIP: Buy at 180p

Trading difficulties were certainly apparent in the domestic UK market, where second half revenues were down by a nearly a third, with 65 per cent of Volution’s employees furloughed at the height of the pandemic. Sales in the UK New Build Residential Systems sector contracted for the first time in a decade.

Other locales fared well by comparison, highlighted by organic revenue growth and margin expansion in the group’s Australasian markets. Indeed, the group as a whole managed to boost the adjusted operating margin by 70 basis points in the period prior to the lockdowns. So, the short-term target to improve operating margins to 20 per cent remains intact.

Liberum gives adjusted EPS of 13.8p for the year to July 2021, rising to 15.2p in FY2022.

VOLUTION (FAN)   
ORD PRICE:180pMARKET VALUE:£ 357m
TOUCH:180-180.5p12-MONTH HIGH:270pLOW: 122p
DIVIDEND YIELD:NILPE RATIO:37
NET ASSET VALUE:89p*NET DEBT:42%
Year to 31 JulyTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201615518.47.83.8
201718517.97.04.2
201820616.76.74.4
201923623.19.24.9
202021714.64.9nil
% change-8-37-47-
Ex-div:-   
Payment:-   
*Includes intangible assets of £197m, or 99p a share