SIF Folio: Volex Makes Bid For AIM Elite

5th Aug '20 by Roland Head

10 comments 3726 reads

Events this year have shone a harsh light on the balance sheets of listed businesses. Many companies that were previously thought to be sound have been forced to raise cash.

For shareholders, some of the heroes of the day have been mid-cap AIM businesses with owner management, genuinely strong balance sheets and long histories. Diverse firms such as James Halstead, Abcam, and Nichols have outperformed the market and showed no sign of distress.

These three firms operate in very different sectors (flooring, life sciences and soft drinks). But one thing they do have in common is that they rarely look cheap.

This week I want to take a look at another AIM firm that’s showing similar promise but does look potentially cheap.

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Volex: wired for success?

Cable supplier Volex (LON: VLX) has been in business for more than a century. Today it makes the electrical wiring assemblies used in smartphones, computers and industrial products such as medical scanners and electric cars. According to the website, it’s one of the top two suppliers globally in this market, with a 7% market share -- so I guess it’s a fairly fragmented market.

This £200m firm recently reported “flat” revenue for the second quarter and “similar” profitability to the same period last year. It has net cash and recently confirmed the payment of its 2019 final dividend.

As Paul commented at the time, that’s a pretty credible performance for a manufacturer facing a difficult operating and commercial environment.

The owner-manager at Volex is City financier Nat Rothschild, who has owned a quarter of Volex since 2008. He decided to take a more hands-on role in 2015 and joined the board as executive chairman, rapidly ousting the previous incumbents.

Cynics might suggest that Volex is Mr Rothschild’s quest for stock market redemption, after the disastrous flotations of Indonesian coal stock Bumi and Kurdish oiler Genel Energy. Critics have also pointed to his lack of experience in the industrial cabling market. However, this story has been a fairly happy one so far.

Volex shares have tripled from their 2016 lows and are worth about 60% more than when Mr Rothschild took charge. Trading results have also improved. Although sales are down, a focus on product differentiation and margins means that profitability has improved significantly over the last…

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dharding22

5th Aug '20

Thanks Roland for a very considered appraisal of Volex. I’ve had the company on my watchlist for a while and recently bought in.

If you haven’t seen it, take time to register on the Investormeetcompany site, www.investormeetcompany.com. Paul recommended the site a while ago and Volex are one of the companies who are engaging with private investors via the site and they presented their results on there in June. It’s well worth a listen and will (I think) strengthen your view of the company.

Jeffvshepherd

My only problem with Volex is its lumpy cash flow, I haven't looked into why it is like that though.

Logical David

Thank you Roland for a balanced and positive writeup on Volex which I bought 12 months ago. It confirms my view that this company is going places and it is a share to hold long term, especially as electric cars take off and hopefully Volex will be able to produce the wiring harnesses for them.

I see that today, the wife of the Chief Operating Officer has bought just shy of 100,000 shares in Volex at 137p. I view this as a good sign.

Melvyngd

You mention that Volex could come back into profit by 2022, but how does that stack up for the SIF folio when you only aim to keep stocks for 9 months. That will take you to April 2021. What is your logic for this purchase.

FREng

I think it's "keep for 9 months and then review".

sharw

I would endorse the useful insight given in the investormeetcompany presentation mentioned by dharding22.

e.g. Roland says " My only concern is the group’s regular use of acquisitions (two last year)". These are discussed at 31 mins. into the presentation and they give the impression they are carefully thought out - in one case it was because the owner of a long term supplier wanted to retire!

Roland Head

Hi Melvyngd,

I meant to suggest that profits would recover from the impact of COVID-19 by 2021/22. Broker forecasts suggest that Volex (LON:VLX) should also be profitable during the current year, just at a lower level.

Markets are resolutely forward-looking, so as long as trading recovers steadily I don't see a shortfall this year as a particular concern.

Regards,

Roland

Hi dharding22,

Thanks for flagging this up, I'll try and take a look.

Tommy H

Hi Roland

Thank you for the article, and good and balanced read. Similarly this has been on my watch list for a while, though my only challenge with Volex (LON:VLX) is trying to get a trade through, even when in smaller value I am not getting a quote and very reluctant to do a "let someone else set the price", or is that just me and Halifax?

Thanks Tommy

jonno

Hi Tommy

Peter Lynch used an expression in one of his books, I can't remember which, that one shouldn't 'nickel and dime' a stock. In other words if you like the stock and it is reasonably priced then don't let a penny or two on the price prevent you from buying, after all if you are right a couple of pence in two or three years time will be inconsequential. That is not to say that you may be able to buy it cheaper if Mr Market throws a wobbly. It is a matter for the individual. I hold Volex (LON:VLX) having recently added on the AGM update at around 132p.

Just my view, influenced by Mr Lynch , but as always it is a matter for the individual and and of course DYOR.

All the best

SIF Folio: Volex makes bid for AIM elite

Volex: wired for success?

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Roland Head

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