Volex PLC

Volex PLC (LON: VLX) is an FTSE AIM UK 50 Index listed global supplier of manufacturing services and power products.

Rationale for Valuation – Speculative Buy at GBX 226.22

• Positive Trading Update: The Group declared a trading update on 20 April 2022, and it has confirmed that revenues and underlying operating profits are expected to be ahead of consensus, for the 52 weeks ended 3 April 2022. It is anticipating revenues to be in excess of US$605 million in FY22, compared to US$443 million in FY21. Underlying operating profit is expected to be in excess of US$55 million in FY22, compared to US$42.9 million in the prior corresponding period.
• Decent Demand: The Group has reported decent customer demand and robust growth in revenue, aided by the Electric Vehicles sector where revenue has almost doubled.
• Strategic Investments: The company has made strategic investments in its production facilities, equipment, IT, and people in view of long-term growth objectives. Further, the Group completed four acquisitions during FY22, thereby enhancing its capabilities and expanding its footprints.
• Technical Indicators: The price of the stock is hovering near the lower Bollinger band with a 14-day RSI level of ~37.39.

Key Risks

• Supply Disruptions: The company is exposed to the risks of global supply disruption fuelled by component shortages and shipping issues.
• Commodity Risk: The Group is also prone to volatility in commodity prices and rising inflation which can adversely impact its profitability.

Financial Highlights (for 26 weeks ended 03 October 2021, as of 11 November 2021)

 (Source: Company Filings)

• Solid Growth in Bottomline: The company delivered decent bottom-line growth in H1FY22, with statutory profit before tax grew by 34.7% to US$19.4 million, compared to H1FY21.
• Debt Profile: The company has reported a net debt position of US$21.8 million as of 3 October 2021.

Share Price Chart

 (Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

* Peers considered are Dialight PLC, XP Power Ltd and discoverIE Group plc.

*All selected peers are LSE-listed Companies from the Industrials sector.

* 1 USD=~81.08 GBX 

Conclusion 

The company is bullish on its prospects on the back of decent demand for its products and seems to be well placed for the future.

The stock made a 52-week high and low of GBX 494.70 and GBX 222.20, respectively.

Based on the positive trading update, decent fundamentals and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Volex PLC at the current market price of GBX 226.22 (as on 12 May 2022, at 12:50 PM GMT+1) with lower double-digit upside potential based on 16.92x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’ 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.