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.”
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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.
The shares are held by an impressive group of American and British institutions. All being well, they will be joined by others.
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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.
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
Naked Wines
There was a rude awakening for investors in Naked Wines yesterday, when the shares collapsed by nearly half, falling by 128p to 159p. They have sunk from 879p since last July, a clear case of the falling knife that investors are warned not to catch.
• Naked wines exposed as investment runs dry
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For the year to March 28, sales rose £10.1 million to £350.3 million , gross profit went up £6.2 million to £141.7 million and adjusted pretax profit increased to £3 million from a £500,000 loss last year. Those numbers were very much as flagged in April’s trading update. Less inspiring was some of the accompanying comment.
Nick Devlin, the chief executive, raised the possibility of a 2022-23 loss when he said: “We intend to trade the business at or around break-even this year.” For a company that was a huge beneficiary of the continuing trend towards working from, and drinking at, home this may be excessively cautious, but it is not the sort of sentiment that sends investors emailing their brokers to buy.
Even more worrying was a possible breach of the firm’s $60 million asset-backed lending facility, signed on March 31. The statement said: “This material uncertainty may cast significant doubt on the group’s ability to continue as a going concern and therefore to realise its assets and discharge its liabilities in the normal course of business.”
The board may want to put that out in public to cover themselves against future problems but it is unusual, to say the least.
Naked, which was split from Majestic Wines in 2019, operates online only and claims to be the world’s biggest direct-to-consumer wine business. In the year just ended, US sales were £157.4 million, UK £147 million and Australia £45.9 million. Although the UK grew a healthy 10 per cent, however, the US shrank by 3 per cent. Only two years ago American sales rose 20 per cent. Even allowing for the economic conditions, that is quite a slowdown.
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“The path to our goal will not be linear,” Devlin said. Maybe, but linear is what shareholders want.
ADVICE Avoid
WHY Too many unknowns and uncertainties
