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Volex – a continuing recovery?

By Steve Moore | Friday 11 August 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Having been just above 40p, a June results announcement emphasising “strong cash generation and returns to a net cash position. Restructuring activities and tight cost control contribute to an increase in underlying operating margins” saw shares in power cord and harness assemblies company Volex (VLX) rise over the next month to comfortably above 60p. They are currently though back below this level after AGM and strategic partnership announcements…

The AGM statement noted first quarter trading “in line with our expectations”, but also some growth-related “operational challenges” at its Mexico facility, commodity price increases and some adverse currency movements affecting labour costs. It though concluded “confident in Volex's ability to continue to make revenue progress and deliver further value to our shareholders”.

The market though wasn’t so confident – sending the shares back towards 60p. The AGM statement also included “pleased to confirm that we are now shipping products to a key manufacturer of electric cars and look forward to supporting them with the launch of a new model later this year” - and the company has now announced a “strategic partnership” with South Korean manufacturer of automotive harnesses and connectors, Nexen Tech “to jointly expand... product offering and customer reach in the high-growth electric vehicle market”.

Volex Executive Chairman Nat Rothschild emphasises this “fills a gap in our product offering, and opens up significant cross-selling opportunities”, but there is no financial detail provided. Additionally, on this subject, the return to a net cash position was with a $14.6 million swing to an $11.3 million such position. However, $10.8 million of this was a net working capital inflow – and this all compares to a current more than £53 million (approaching $70 million) market cap.

I’ll require better evidence of sustainable recovery before reconsidering better than on the watchlist.


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