Volex

Despite the economic headwinds affecting many, electrical-to-electronic assemblies specialist Volex (VLX) has reported a solid set of interims.

A new management team led by chief executive Ray Walsh has helped refocus Volex away from contract manufacturing towards higher-margin specialist solutions. This has led to a recovery in gross margins to 19.3%, although this is still some way off its three- to five-year plan to hit 'mid-20s' returns.

In the six months to 2 October, it achieved good growth in all four operating divisions, with total sales up 14% to $270.7m, as normalised operating profits increased 16% to $14.9m. Investors are also to be rewarded, with the payment of a 1.5 cent dividend.

The consumer arm (sales up 12% to $169.9m) remains the largest. Here, Volex is the largest supplier of power cords for a number of consumer products ranging from games consoles to freezers. Volex has enjoyed good growth in Asia, and has benefited from customers stockpiling ahead of the Christmas trading period.

Walsh argues that, after years of underinvestment, Volex is now investing more heavily across its nine worldwide factories. IT upgrades are under way, and new manufacturing kit is being installed for precision injection moulding. Wage inflation in China of 20% remains an issue, but Volex is keen to push savings through by increased efficiencies.

Broker Charles Stanley forecasts 2012 sales of $535m, pre-tax profits of $26.9m and EPS of 23.7p. Speaking to Growth Company Investor, Walsh said, 'We have seen no indication of a pullback in orders and are on track to deliver full-year forecasts.' With an untapped $150m debt facility for acquisitions, there is also scope to pick up weaker rivals. The shares are fairly priced for now. Hold.