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Volution bolsters margins

Facing tricky UK and Nordic commercial construction markets, the ventilation specialist has benefited from operational improvements, up-selling and cost-cutting
Volution bolsters margins

Volution (CWR) supplies ventilation systems to residential and commercial construction markets across the UK, Europe and Australasia. The six months to 31 January saw 5 per cent constant-currency sales growth driven by its 2019 acquisition of Australian ventilation specialist Ventair. Organic revenue declined by 1.4 per cent due to a slowdown in the UK commercial construction market as well as weakness in the Nordic region.

IC TIP: Buy at 161p

Operational improvements at its new Reading manufacturing plant, up-selling of higher-value products and cost savings helped boost the adjusted operating profit margin by 0.7 percentage points to 18.3 per cent. This translated to adjusted operating profit rising by 9.1 per cent at constant currencies to £21.8m. The group is aiming to reach a 20 per cent margin in the medium term.

Excluding £20.4m in lease liabilities, net debt came down almost a fifth to £60.5m, equivalent to 1.3 times adjusted cash profits. House broker Liberum projects net debt will fall to £49m by the year-end.

With regards to coronavirus, Volution says it has limited sales exposure to some of the most affected countries to date – China, Italy and South Korea – and currently expects its second-half performance to be largely in line with the first six months of the year. Liberum has downgraded its forecasts by 2 per cent, and now forecasts adjusted earnings per share of 16.7p for the full year, rising to 17.7p in 2021.

VOLUTION (FAN)    
ORD PRICE:161pMARKET VALUE:£321.1m
TOUCH:160-161p12-MONTH HIGH:262pLOW: 165p
DIVIDEND YIELD:3.1%PE RATIO:16
NET ASSET VALUE:87p*NET DEBT:47%**
Half-year to 31 JanTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201811510.24.11.60
201911911.94.71.71
% change+3+17+15+7
Ex-div:26 Mar   
Payment:5 May   
*Includes intangible assets of £199m, or 100p a share, **Includes lease liabilities of £20.4m