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Volex PLC

Volex on the up again after root and branch overhaul

"We're running a business now that is delivering cash flow and we're in two segments that are growing pretty strongly"

Volex PLC -
Cables have got smarter too

Volex PLC’s share price (LON:VLX) does little justice to the changes that have occurred at the cable maker in recent years.

At 84p currently, the shares are barely higher than five years ago but beneath the hood there is a completely different beast to the perennial disappointer of back then.

Key to the changes has been a new management team of Daren Morris as chief financial officer and financier Nat Rothschild as executive chairman.

Rothschild might be a divisive figure in City circles, but it’s hard to argue with how well Volex has done under his managerial combination with Morris– an old university friend and engineering company veteran.

WATCH: Volex PLC 'a resilient, diversified business' delivering strong cashflow

We're running a business now that is delivering cash flow, we're in two segments that are growing pretty strongly and showing our return to health by paying a dividend,” Morris told Proactive.

“That is a far cry for from a few years ago when there were serious doubts whether the business would survive at all.

''We have 13 factories around the world, 6000 employees and we supply lots and lots of products to household names.”

Numbers bear out the transformation. Volex’s last set of results, for the year to March, showed revenues up 15% at US$372mln and more than doubled underlying profits of US$20.2mln.

Pre-tax profits were 135% better at US$9.2mln while net cash climbed to US$20.6mln.

Analysts are expecting more improvement over the coming twelve months with consensus forecasts suggesting underlying profits will climb to around US$30mln with a dividend of 3 pence per share.

“It’s important we pay a dividend,” says Morris.

“The company has been around for 100 years so it should be paying something back to shareholders.”

Factory by factory

Morris’s confidence is borne out of the fact that he has been at the heart of the company’s rejuvenation.

Asked by Rothschild in 2014 to go onto the board and assess where there was a business worth saving, after a root and branch, factory by factory overhaul he confidently says things are on the up again.

Major customers such as the number one electric vehicle manufacturer, household appliance group Dyson and retail giant Amazon bear witness to the financial stability and re-found confidence about its place in the cabling world.

“At the heart of Volex is a really good engineering team that can make great power products,” says Morris.

Customers get an option, he says, - “Do they want a product better or cheaper?”

And increasingly they are taking the better option.

EV cables

In electric vehicles for example, the number one player chose Volex for a charging cable for its electric vehicle range after struggling to find a supplier that could deliver the required quality.

So now if electric vehicle owners accidentally reverse over their charger plugs they don’t break because Volex uses a waterproof, galvanised rubber that bounces.

Morris, though, is not expecting a massive bonanza from the advent of electric cars.

Yes, every household in the developed world might eventually need a charging cable, but once volumes start to become huge that’s when it becomes a commodity product.

At that point, the huge volume producers step in and compete on cost, which is somewhere Morris does not want to take Volex.

“We don’t want to be at the low-end, cut-throat part of the market, but more of a quality brand.”

Volex’s two divisions include Complex Products - where it provides the cabling inside medical machines such as MRI scanners, ECG monitors and such like that use shielded cables that are difficult to make – and growing markets such as data centre cable.

The Power Cords division contains the commodity business of appliances and computer cables along with customers that want something a bit more individual, such as Dyson.

Changing market

Morris admits the market is constantly changing – induction charging, for example, is fast becoming the norm for laptops and mobiles.

That presents challenges, but other avenues, too, are opening up especially now that Volex is seen as a secure and reliable supplier.

Instead of cables in laptops, it makes the harness that houses the in-device battery and links it with other parts.

Volex is now also being asked by customers to act as a supply chain consolidator.

In July, it bought US group Servatron for US$28.5mln adding complementary technologies such as PCBA manufacturing, state-of-the-art test capabilities and higher-level system integration.

More acquisitions seem likely, though Morris is no hurry.

Plenty of headroom

“We have cash, a US$40mln debt facility and loads of headroom to invest or cope with a downturn.”

Even the lowish market value of £126mln is not a major concern.

As the numbers come through and the improvement underway is recognised that will take care of itself believes Morris.

“I’d say we are pretty much bullet-proof at the moment.”

Quick facts: Volex PLC

Price: 87 GBX

Market: AIM
Market Cap: £130.39 m
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