Volex: Q1 Ahead Of Expectations

Volex has announced that its trading recovery has continued. While no financial details have been disclosed, we see this announcement as encouraging as it shows further evidence of the successful implementation of Volex’s transformation plan, with signs that a return to revenue growth is now being achieved. Being conservative, we are keeping our forecasts unchanged and maintain our stance of buy, with a target price of 245p.

AGM & IMS Statement

At its Annual General Meeting, Volex has announced that results for Q1 (period ended 30th June) were ahead of its expectations in terms of both revenues and profitability. The leading global provider of power and data cabling products added that the recent successful fundraising and renewal of banking facilities has meant that it can move forward with delivering its Transformation Plan at an accelerated pace and thereby ensuring that a return to growth can be ensured in a sustainable manner.

Financial forecasts

We continue to forecast revenue of $410m on underlying EBIT of $9.9m for FY15 and revenue of $430m on underlying operating profit of $13.0m for FY16. As previously mentioned, we anticipate that the cost saving measures will feature more strongly in H2 FY15 and that margins will gradually improve, leading to further increased profitability.

Attractive valuation

Blending the industry and acquisition EV/EBITDA and EV/Sales multiplies, and multiplying this by our FY16 forecasts, before subtracting out its current net debt position, we have derived our target price of 245p. We see the biggest risks to our forecasts coming from a delay in the execution of the transformation plan, particularly in the manufacturing processes.