PAUL Scott Stockopedia comments. 1X226 Oct 2023 14:15
This is one of many small-mid caps that tends to drift down between announcements, as people worry about macro impact on its trading. Then we get in line updates each time. It’s the same this week, we’re reassured -
The Group continues to maintain strong financial momentum and is well positioned to achieve full-year results in line with market expectations1,2…
2. The Company has compiled forecasts from four analysts with current market forecasts for the 52 weeks ending 31 March 2024 for revenue to be in the range of $849.8 million to $891.0 million, with a consensus of $864.6 million, and for underlying operating profit to be in the range of $82.3 million to $87.0 million, with a consensus of $84.3 million.
Excellent, very clear reporting there. Hats off to owner/manager Nat Rothschild for building a significant sized, and decently profitable group here.
Remember that Volex was quite a mess years ago. I can remember being initially sceptical about its turnaround, but then turning positive on it possibly around 2019 from memory, when the figures really began to strongly improve.
Since then, Volex has been absolutely transformed through a turnaround, and it seems an effective, value-building, disciplined (not over-paying) bolt-on acquisitions strategy.
Revenue growth in H1 of 4% is quite modest, but that’s organic, and against a strong comparative.
Customer de-stocking is mentioned, an important point of general read-across that I’ve spotted other companies mention too - higher interest rates mean that companies generally want to reduce cash tied up in receivables and inventories. Improving supply chains also mean that companies feel safer to run down inventories back to more normal levels.
I’m impressed that Volex seems to have been able to ride out and offset this destocking -
This has been more than offset by strong demand in Medical and Complex Industrial Technology supported by better availability of key components. There is evidence of de-stocking slowing in some channels, as order patterns are starting to normalise, particularly in Electric Vehicles.
Major recent acquisition $195m - of Murat Ticaret - positive-sounding comments on this. It will contribute 7 months to the P&L for FY 3/2024.
Debt - “covenant leverage” of 1.3x looks fine to me, and would only become an issue if trading fell off a cliff. Also I cannot imagine that the owner/manager called Rothschild would have a lot of trouble arranging bank facilities!
Cyber incident - we have to trust management on these things, but I don’t see (or even hear) any alarm bells ringing here -
… there is not expected to be any material adverse impact to revenue or underlying operating profit as a result of the incident. Costs for the recovery and remediation of systems are anticipated to be approximately $2 million, which will be reported as an exceptional item in the second half of the year.
Hopefully they’ll now have bulletproof IT protecti
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