Volex share price slips on weaker H2 outlook after 41% profit surge

Down 7% to 529p (£956m) - Half-Year Report

The Volex share price is down this morning following the publication of the company's results, despite the company reporting a 41% surge in H1 profit and unchanged guidance for the current year.

I think this mild sell-off is mostly a reflection of the possibility that the AI-related growth is slowing, rather than any disappointment in the numbers.

Despite this, I think it's worth remembering that earnings expectations have risen steadily over the last 18 months. Growth isn't solely being driven by data centre demand either - today's results show growth across the business, particularly in EVs.

Let's take a look at the numbers.

Half-year summary

These headline numbers cover the six months to 30 September and are pretty strong, as we were briefed to expect in October's half-year update:

• Revenue up 23.9% to $723.6m

• Underlying pre-tax profit up 43.1% to $69.4m

• Underlying EPS +40.6% to 27.7c

• Interim dividend up 6.3% to 1.7p

• Net debt excluding leases up 34.7% to $203.7m

Divisional results: gaining share in EV

Complex Industrial Technology (which includes Data Centres) is now Volex's largest business by some margin. Sales in this division rose by 41.2% to $218.3m in H1, with Data Centre revenue climbing by 47% to represent 57.6% of divisional sales (c.$125m), thanks to the company's status as "a trusted supplier to a leading hyperscale customer".

Volex has been supplying the high-speed copper data cabling used to connect equipment within data centres. The company says that over short distances, these products use less power and generate less heat than optical alternatives.

One potential concern is that Data Centre revenue appears to have peaked in H2 FY26, when the company's inventory of components allowed it to meet customer demand "when other suppliers could not" (my emphasis):

Data Centre revenue, which now represents 57.6% of revenue in this sector, was well ahead of the prior-year period, with 47.0% organic growth, but below the second half of FY2026, primarily because of additional volumes in that period that did not repeat.

We're told that market conditions have now normalised, although it's not clear to me how much of this reflects demand and how much is about supply.

Fortunately, growth elsewhere also remains positive, with other customer segments within the Complex Industrial Technology division seeing underlying revenue growth of 20% during the half year.

EV & Electrification: Volex's H1 growth wasn't limited to a surge in demand for data centre products. The largest percentage growth was actually in EV & Electrification, where revenue rose by 46.8% to $133.6m.

The company says it won a "greater share of our largest EV customer's requirements" during the period, driving a one-off step change in demand. Management says most of this came from charging products, so is not directly linked to vehicle production (although I suspect there's some linkage).

Volex says its vertically integrated model provides a number of competitive advantages:

We extrude our own cable, mould our own components and make our own pins, which gives us a cost position and a speed of response that competitors buying in these parts find hard to match.

As with the increase in data centre revenue, EV product sales aren't expected to rise in H2. Today's guidance is for a EV & Electrification to be "broadly in line" with the first half - so potentially slightly lower.

Other divisions: all of Volex's remaining businesses delivered sales growth in H1, in contrast to the more mixed performance seen in FY26.

• Off-Highway: organic revenue up 12.6% to $144.3m, although reported growth was hit by an $8.6m currency headwind.

• Consumer Electricals: organic revenue up 9.5% to $138.3m. Longstanding OEM partnerships are supporting growth in harness products and the company notes that the increasing complexity and connectivity of domestic appliances is creating more opportunity for the business: "Relationships that started with power cords are developing into internal appliance harnesses worth several times more per unit."

• Medical: organic revenue rose by 1.8% to $89.1m, marking a return to growth after last year's customer destocking. The company acquired the remaining 64.3% of medical cabling specialist KST in July for up to $89m. This has since contributed $11.3m of revenue and is expected to be margin accretive, with cross-selling opportunities.

Balance sheet: net debt rose by $82.2m to $203.7m in H1, relative to the end of FY26. This reflects a number of factors, in particular a net initial cash consideration of $35.8m for KST and an underlying working capital outflow of $29.1m to support higher levels of business.

Share buybacks also contributed a small amount to the increase in net debt. While I don't like to see borrowed cash use to buyback shares, it's not something I see as a big issue at this time.

Profitability: these results lift Volex's trailing 12-month operating margin above 10% for the first time, but I'm not sure if we should rely on this being sustainable, given the exceptional contribution from Data Centre products over the last 12-month period.

Even so, the trend of steadily improving margins is encouraging, in my view, especially as it's also translated into improvements in return on capital employed:

Outlook

The second half has started well. The Board’s expectations for the full year, as upgraded at the October trading update, are unchanged.

Consensus forecasts following October's update are for revenue of $1,407m and adjusted EPS of 51.5c.

Comparing these estimates with today's H1 figures suggests that both revenue and earnings will be lower in H2:

• H1 revenue & EPS: $724m and 27.7c

• Implied H2 revenue & EPS: $683m and 23.8c

In some cases I'd be concerned about this, but in this case I don't think it's too much of a worry. It's clear there was an exceptional period of demand for Data Centre products over the last 12 months, which is now easing.

The risk, of course, is that this is the start of a longer decline in Data Centre volumes, as the AI build-out slows. There's no clear sign of this yet, but it's certainly something I will be watching for.

Roland's view

Zooming out slightly on the share price chart, we can see when the AI trade really took off for Volex:

A return to more normal levels of growth will inevitably disappoint some investors, but I don't think it should detract from the company's continuing strong performance.

The stock has also now consolidated somewhat, falling by nearly 25% from the 700p highs seen in May and October. This de-rating has left Volex looking quite reasonably priced, in my view, with a PEG ratio of just 1.0x:

Graham left our broadly-positive view unchanged in October and I'm going to do the same today. While Volex's individual product lines will always carry some cyclical risks, my impression is that the business is continuing to grow in a number of attractive markets and is reasonably priced.