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I should point out the decrease in earnings per share is due to the to some degree to the companies investment in future growth. So one for a medium term hold. I hold quite a few, but have also been trading them along the way.
Given the high inflation/high interest rate/ recession heading economy we are entering I cannot see them soaring in the short term.
It's no mystery.
The results were good in terms of revenue, but not in p/e terms ie earnings per share actually went down 30c -> 25.2c.
Thus yes show good growth, but not earnings growth .
Then Times + other tipsters backed them and share price rose.
Wonder what the hell happened this morning for the sp to tank and then spike back up to 230+.
(Sharecast News) - Analysts at Canaccord Genuity lowered their target price on integrated manufacturing specialist Volex from 440.0p to 380.0p on Friday, stating the group's five-year plan was "ambitious but achievable".
Canaccord Genuity noted that Volex's performance in its recently wrapped up trading year was in line with expectations, with full-year revenues up 39% year-on-year at $615.0m and adjusted pre-tax profits growing 24% to $51.0m in "a record year" for the company.
In terms of the group's five-year plan, Canaccord said Volex's new 2027 targets would take revenue to $1.2bn, with a 9-10% margin range, with at least $200.0m of this revenue target to be M&A driven.
"This means Volex would require revenue to grow by 10% CAGR to reach its organic target ($1.0bn), which in our opinion provides an ambitious but achievable goal. We think pricing power, production efficiencies, and accretive M&A mean margin ambitions could prove to be prudent, albeit we are cognisant that EV growth will likely dilute the mix," said Canaccord.
While the Canadian bank maintained operating margin expectations for Volex's 2023 and 2024 trading years, which were set towards the bottom of the company's 2027 target range, it also noted that higher interest charges had driven adjusted pre-tax profits 2-3% lower and guidance that the firm's tax rate will increase also resulted in a roughly 10% adjusted earnings per share reduction for both years.
"On a cal. 2022E basis Volex trades on a P/E of 11x and EV/EBITDA of 7x vs sector averages of 18x and 11x, respectively. Our sector average-based TP of 380.0p (a market-driven decrease from 440.0p) would see this unwarranted discount, in our opinion, eliminated," concluded Canaccord, which also reiterated its 'buy' rating on the stock.
What sent analysts into ecstasies was a new five-year plan aiming at doubling revenues by spring 2027 while maintaining profit margins at 9 to 10 per cent. The company expects only $200 million of the $600 million extra revenue to come from add-ons.
In addition to the UK, Volex already operates in the US, Canada, Mexico, Turkey, India and elsewhere, so it will continue to be sensitive to currency movements. However, its position near the technological cutting edge should keep it fairly impervious to macroeconomic headwinds.
Rothschild gives himself about a dozen years to develop Volex to maturity. He sees the shape of the business being roughly maintained, although electric vehicle supply should rise to about a fifth of revenue, helped by innovations, for example in charging cars from home.
The main downsides concern the competition for talented labour, and competition in Volex’s markets from thousands of similar small businesses around the world. Given the size of some of its customers, there is always the prospect of Volex becoming a takeover target for a bigger company that wants a ready-made package in this corner of the commercial landscape. But that should do investors no harm.
SPONSORED
The shares are held by an impressive group of American and British institutions. All being well, they will be joined by others.
HSBC sees the p/e ratio falling from 11.7 now to an attractive 8.8 for the year ending March 2025, which assumes no further per-share earnings setbacks.
Copied from Ijamon post on advfn :-
Times conclusion:
Despite all this promise, the share price has fallen from 493p to 235p since last September, suggesting that there are sceptics lurking in the undergrowth. Nevertheless, on balance that decline looks more than anything like an opportunity to climb aboard at what may prove to be a historically cheap level.
ADVICE Buy
WHY Plenty of potential for an exciting ride under a well-motivated and experienced management
Cable maker Volex is in a position of power
William Kay
Friday June 24 2022, 12.01am, The Times
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Volex is a company of many moving parts, and most are travelling in the right direction. New management, under Nat Rothschild, took over five years ago and is transforming the business into a power cord and cable supplier for computers, printers, games consoles, kitchen appliances, data centres for medical and industrial uses and — most enticingly of all — electric vehicles.
That is a lot to keep an eye on, but it is comforting to have a Rothschild in charge, especially when he owns 24 per cent of the shares.
Revenue for the year to April 3 jumped from $443.3 million to $614.6 million, though that was inflated by four acquisitions. Any investors coming in now will have to get used to that, as takeovers will be a major plank in the strategy for several years. Net debt jumped from $27.3 million to $95.3 million, which is likely to keep growing and require some financial dexterity to manage. Volex has just arranged another $200 million line of credit, which will be by no means the last.
Underlying operating profit rose more slowly than revenue, from $42.9 million to $56.2 million. Thanks to the expansion and a higher tax charge, earnings per share were 16 per cent lower, at 25.2 cents. That suggests the management may need to keep their enthusiasm under control.
Electric vehicle revenue virtually doubled during the year to reach $100 million or nearly a sixth of the total. That proportion is set to keep increasing, and may encourage the top team to unload some of their less exciting activities. “We continue to see significant opportunities,” Rothschild said. “The infrastructure and acquisition investments we have made in FY2022 are focused on our pursuit of further growth, capitalising on the leading position we have in attractive sectors. With an exciting acquisition pipeline and access to funding, we will continue this successful strategy.”
Cable maker Volex is in a position of power
https://www.thetimes.co.uk/article/f6d3781c-f2fb-11ec-beb3-8cbcdd742a95?shareToken=c2550cc6ca3114bb8f6071898d733782
It's kind of bitter-sweet isn't it.
Your costs will moderate but your market will shrink.
That will be good for volex unless they have locked in contacts for copper .
Copper plunged to a 16-month low on broad recession fears and particularly worries about a China slowdown due to Covid lockdowns.
This is something that the majority of companies have especially when growing. Most would not survive if they didn’t have debt facilities . Good result and the future looks very good in my view. Don’t think this share is for the get rich quick boys.
MORE......of a very long posting - too long to post here
EPS fell, but that’s because of last year’s negative tax charge, which we already knew about, so no surprises there. Underlying EPS rose 6.3% once this tax effect is stripped out.
Underlying diluted (for share options) EPS was 25.2 US cents, or 20.6p in sterling.
Stockopedia shows 25.9 US cents broker consensus, so a slight miss, but a note from Liberum this morning says the results are ahead of its expectations. So I’ll probably just view it as in line.
PER is 11.7, based on FY 3/2022 actual EPS of 20.6p - that’s great value for a resilient, growing group.
Of course, earnings are likely to continue growing (organic & acquisitions), and a new 5-year plan is announced, with a target to double revenues to $1.2bn by FY 3/2027, at a operating margin of 9-10% (similar to what is currently being achieved). Hence there’s scope for this share to double earnings, and I suggest, re-rate onto a higher PER than 11.7 also, giving the possibility that this share could double or triple in the next few years. Also bear in mind, it over-achieved against the last plan, and has established a track record for making good acquisitions, which is not reflected in the current valuation.
Cost inflation (copper, plastic & wages mainly) is passed through to customers, with a lag, since contracts already factor in price rises either quarterly or annually. Copper rose a lot in 2020 & 2021, but has more recently been falling. Volex took all that in its stride, so this share looks a lot safer than many investors imagined, with chat on bulletin boards often focused on the price of copper, and some people selling the shares because they wrongly imagined it would hit profits at Volex.
Broker forecasts - have been set quite low, with only a modest increase in EPS for FY 3/2023. Today’s update that the new year has started strongly, and the benefit from 4 acquisitions made in FY 3/2022, suggests to me that the risk of a profit warning from Volex looks relatively low.
Balance sheet - net debt has shot up to $74.4m, to fund acquisitions, but is not alarmingly high. NTAV is fine, at $78m.
My opinion - there’s a lot to like here. Macro worries, and investor fear, seem to be throwing up bargains right now - we’re finding new ones almost every day here at the SCVR.
Volex is performing well, has tailwinds from growth in its key markets (especially EVs), is passing on cost increases to customers, and clearly has excellent management with big skin in the game, delivering well on its expansion plans. Yet we can buy this for a PER barely into double digits - that’s a clear opportunity in my view.
Once markets are more settled, then I imagine this share could be 50% higher than it is now, and longer term, considerably more than that, due to the organic & acquisitive growth. Unless something goes wrong (which is always possible), then this looks a very attractive GARP (growth at reasonable price) share right now.
As with everything, I’ve no idea what the short term share price is likely to do, as that’s sentiment-driven.
https://app.stockopedia.com/content/small-cap-value-report-thu-23-june-2022-placeholder-949679?order=createdAt&sort=desc&mode=threaded
Topped up this morning first thing! Should have kept my powder dry :(
LT looking good though. Hey ho!
debt being more than I would like - they have been acquiring new business though so it is what it is in that regard . Particularly like their comments about doing more complex jobs and their global footprint helping ref near shoring being the way to go for now.Seems clear to me they are in fine fettle and the stuff they do must be adding value to what their customers get - it’s clear they have a moat
what - theres a massive increase in net debt. don't think the mms will like that
There’s confidence for you amongst all the doom and gloom around !
It’s day after tomorrow mate….and sure it will bring great news. This company is just massively over looked…one of best run out there. Good luck
Hopefully tomorrow will bring good news
Well, I'm following Mr Rothschild and added to my holdings today.
With the firm on target to achieve its 5 year plan, it looks ripe for an opportunistic buy out
Not a holder but on my watchlist for some time. The reason this is going down is the same reason that most other stocks (particularly smallcaps) are being destroyed at the moment. Its not stock specific. Its all to do with investors moving to risk off (go to defensives, commodities, cash etc) and people discounting future cashflows due to inflation. The question you have to ask yourself is, can Volex pass heir increased costs (from staff and material cost increases) onto their clients and maintain or even improve current margins. If they prove they can over the next year, then the valuation will likely recover.
I keep reading the last update and the drop makes no sense. For that reason I am not going to invest more as I cannot see any reason for current drop so I have no clue as to how far it will drop and whether something is going on that I am not aware of. Ifthere has been no material change in outlook then this will surely bounce though sadly maybe only to bring me back level
Wish I had cash now
Agree Nice to see blue for a change lets hope we can manage to stay blue by the end of the day