RE: Volex (LON:VLX): Revenues came in above consensus, but Volex reduced short term profitability, however this is within the range of market forecasts.
Shares are down c.10% today and this looks like a very harsh reaction in my opinion. Margins were bound to come under pressure as the management looks to lower prices and compete for new business. This is the right strategy given the spare capacity in its factories. This is a two-three year turnaround.
The balance sheet is looking a lot better with net debt being better than expected at $33m against a consensus of $38m estimate – a dramatic improvement that implies good cash flow increases.
A high risk investment – possibly. However, Volex is a revenue sensitive business and we have to judge management on its ability to win new customers and manage the supply chain. The early signs are encouraging. Good update, I remain supportive.
