Good morning! Electrical cable manufacturer, Volex (LON:VLX 99p) issues an in line trading statement, despite market conditions that "remain challenging across all sectors". The turnaround plan, to focus on cost cutting and margin improvement appears to be working though.
They have reduced their annualised operational costs by $20m, so it makes you wonder how inefficiently the business was run in the past? At £62m this is a lot of business for the price, with turnover of $478m expected this year, and in the turnaround year, profits of $9m, giving normalised EPS of $0.17, or about 11p. So that puts them on a PER of only 9.
Brokers forecast a 35% rise in EPS next year (ending 31 Mar 2015), with the PER dropping to 7, and I wonder whether there is scope to beat that, given the significant cost-cutting going on?
Yes, it's fairly low margin business, but if things are run efficiently, there are profits to be made. Volex has maintained it's dividend, and the forecast yield this year is a healthy 3.7%. Also, it is good to see net debt has reduced significantly, coming down from $19.5m at the last year end (31 Mar 2013) to $10.8m at end Jun 2013.
Bizarrely, the shares have flat-lined at around 100p all this year, so it seems to me that pressure must now be building for a break upwards, based on today's reassuring trading update.
Volex also announces that it has appointed Nick Parker as CFO, formerly of WANdisco, so he knows a thing or two about getting investors excited about a share! Let's hope some of that excitement can rub off on Volex. Note how Volex has significantly under-performed the small caps sector (the beige line on the price chart below), so if things continue to do well, then I think this one could be a winner. Obviously that's just my personal opinion, so please be sure to do your own research.
It looks as if the open should be fairly quiet, with the futures indicating the FTSE 100 likely to open up about 6 points at 6,639. I note also that Gold has broken through $1,300 overnight, now priced at $1,315, which should mean the recovery in gold mining stocks continues. I hold a couple of these in the…
