Volex

Volex, the electrical and electronic cable assemblies specialist revived by CEO Ray Walsh, is in the early stages of a strong return to growth.

The power products and interconnect cables play, with a history of underachievement before Walsh’s April 2009 arrival reinvigorated margins and prospects, has issued a bullish trading missive covering the first quarter to 4 July. Revenues of £75m were 23% higher than the fourth quarter last year and almost 40% ahead of ‘Q1’ revenues a year earlier. Operating profit of £4m was 5% ahead quarter-on-quarter and 33% up on Q1 'FY2010'. Moreover, net debt of £5m was £12.8m or 72% better than a year ago.

Walsh explained that all four sectors upon which Volex now focuses – Telecom/Datacom, Healthcare, Consumer and Industrial – notched up double-digit growth quarter-on-quarter. The largest sector, Consumer, saw turnover increase almost 20% to £48m, with customers, principally in Asia, seeing increased consumer confidence and Volex growing sales of new environmentally-friendly products. Over in the Telecom/Datacom space, sales were 26% ahead quarter-on-quarter at £16m, driven by burgeoning levels of business with Chinese telecoms OEM customers.

Upgraded forecasts for the year to 3 April 2011 point to a pre-tax surge from £10m to £13.6m at Volex, on markedly higher turnover of £270m (2010: £229m), producing earnings of 19p. By 2012, investors can expect £17.7m pre-tax off a top line £297m.

Stellar recent performers, having surged from Growth Company Investor's 92.5p December 2009 recommendation price to present levels, Volex shares are still surprisingly cheap, selling for only 10.5 times prospective earnings.

Given the likely profits progression ahead under the determined Walsh, as well as analysts’ 300p price target, we still think they offer terrific value. Keep buying.