PAUL SCOTT comments 1x220 Apr 2022 10:11
The share price has been relentlessly falling, which of course makes us all worry that things might be going badly. The reason I’ve been fairly comfortable holding Volex, is because the company recently agreed substantially increased bank facilities. That matters, because banks are all over the management accounts, and would not be expected to increase lending if things were going badly. So that was an important sign, that the market seemed to ignore.
Sure enough, things are going well. Today we’re told -
Results ahead of expectations
Volex is pleased to confirm that the Group's revenues and underlying operating profits are expected to be ahead of consensus market expectations1 for the year.
The Group expects, subject to finalisation of the accounts and audit, revenues to be in excess of $605 million (FY2021: $443 million) and underlying operating profit2 to be in excess of $55.0 million (FY2021: $42.9 million).
1. The Company has compiled forecasts from four analysts with current market forecasts for the 52 weeks ending 3 April 2022 for revenue to be in the range of $575.0m to $586.3m, with a consensus of $581.2m, and for underlying operating profit to be in the range of $53.8m to $54.6m, with a consensus of $54.2m.
So before we get too excited, profit is only slightly above expectations. Still, to have achieved that in a time of supply chain turmoil, and heightened inflation, is impressive.
Strong demand -
Volex has continued to trade strongly, delivering robust organic revenue growth, including a significant contribution from the Electric Vehicles sector, where revenue has almost doubled. Demand has increased during the year with greater visibility of forward orders as customers look to secure manufacturing capacity.
That last bit that I’ve bolded sounds highly significant. It sounds as if Volex could be a beneficiary of supply chain problems, in that customers are committing more forward orders. This probably also means Volex has improved pricing power, since customers presumably are more likely to accept price rises, in return for certainty of supply, in a disrupted world.
Inflation - once again, Volex has confirmed that it is successfully passing on cost rises to customers. Management has been telling us this for a while, but again for some bizarre reason, some investors have ignored this, and made the incorrect assumption that Volex must be suffering from higher copper & plastic prices.
Acquisitions - four have been done this year. Volex seems to have a disciplined approach to making acquisitions (not over-paying, and only buying companies that are a good strategic fit).
This should have led to a re-rating for the shares, but in this small caps bear market, the valuation has actually been falling, which doesn’t make sense at all to me.
Directorspeak - sounds upbeat -
Nat Rothschild, Executive Chairman said, "We have delivered an excellent performance in a challenging environment and are now well ahead of t
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