Volution Group PLC

Volution Group PLC (LON: FAN) is an FTSE 250 index listed designer and manufacturer of energy-efficient indoor air quality solutions.

Investment Rationale for Valuation – Speculative Buy at GBX 344.00

• Trading Update: As reported on 25 May 2022, the Group has posted revenue growth of 17.6% at constant currency in Q3FY22, compared to Q3FY21. Sales have been bolstered by UK residential revenue, where the company has witnessed decent demand during the period.
• Building Inventory Levels: The company has proactively built its inventory during the first half of FY22 and continued to deliver superior customer service, coupled with a disciplined approach to price management.  
• Decent Fundamentals: In H1FY22, the Group delivered an increase in revenue by 13.6% to £149.6 million, compared to £131.7 million posted in H1FY21.
• Technical Indicator: The price of the stock is trading close to the lower Bollinger band with 14-day RSI level of ~35.93, reflecting an oversold stance.

Key Risks

• Macro Risk: The US Fed has raised interest rates by 75 bps in its recent meet which signals a hawkish stance for growth in the near term.    
• Supply Chain Risk: The company is prone to the impacts of supply chain disruption and has to maintain adequate levels of inventory to curb the risk.  

Financial Highlights (for the 6 months to 31 January 2022, as of 10 March 2022)

(Source: Company Website)

• Operating Profit: The company clocked robust growth in operating profit by 46.0% to £23.3 million in H1FY22, compared to £15.9 million posted in H1FY21.     
• Dividend: Interim dividend per share grew by 21.1% to 2.30 pence in H1FY22, from 1.90 pence in H1FY21.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

*Peers: Few peers considered are James Halstead PLC, Marshalls PLC, and Genuit Group PLC.   

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

Conclusion

The management seems to be confident that despite the uncertain macro scenario, its order books and activity levels along with customer focus on improving energy efficiency in buildings should continue to drive demand.

Based on the decent fundamentals, positive trading update and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Volution Group PLC at the current market price of GBX 344.00 (as on 16 June 2022, 10:40 AM GMT+1) with lower double-digit upside potential based on 16.55x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Please note 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.

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.

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