Volex surges as revenues and margins climb

Power cord maker Volex enjoyed a surge after reporting strong revenue growth and a boost in dividends.

Total revenue for the 12 months to April 1st was $517.8m, 6% ahead of last year's figure of $490m.

Revenue from consumer markets rose 9% to $0.33m from $0.30m the year before, largely as a result of increased sales to the firm's major customer.

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Several steps that Volex took to meet the needs of its largest customer (believed to be Apple) in this sector have positioned the group for continued growth in years to come, the company claimed, as Volex is now capable of meeting the standards that other consumer-product companies will eventually insist on.

The group's next biggest division, Telecoms/Data, saw revenue slide 10% to $0.10m from $0.11m the year before, as the group fell victim to a cutback in sending by telecoms firms worldwide. On top of that, the group chose to discontinue certain low margin products.

Healthcare revenue rose 24% and the Industrial division's revenue increased by 6%.

The gross margin improved one percentage point to 19.8%, yielding operating profits of $32m, a 23% gain on the prior year.

Earnings per share gained 31% to hit 42.4 cents while the full year dividend will come in at 4.5 cents.

The group was bullish about prospects for fiscal 2013 (FY2013), with the new consumer products developed last year providing platforms for major sector growth.

"Qualities developed for other sectors are being applied to our Consumer sector to good effect, e.g., ruggedising capabilities that were driven by the needs of the Industrial sector are now being marketed to - and bought by - floor-care customers. High-speed data cables, originally designed for the Telecom/Datacom sector, are now being applied to TV networking customers," the company's statement said.

Additionally, the company sees opportunities to exploit existing relationships with original equipment manufacturers to win new work with original design manufacturers (ODMs) "after they realise the benefits Volex can deliver, particularly since ODMs tend to operate as a global supplier and are looking for global sub-contractors to supply them."

Things on the telecoms side are more cloudy, but China is expected to provide significant growth opportunities, particularly in the data communications sector.

"We enter FY2013 with positive momentum and are well-positioned to generate continued growth in revenues, margins and profit, in line with management's expectations," said Mike McTighe, the company's Chairman.

Broker finnCap, which has a "buy" recommendation on the shares, said the figures were in line with expectations.

"Telecoms/Data saw a 10% reduction in sales but gross margins increased 2.4 points to 21.2%," notes finnCap analyst David Buxton.

"Sales growth momentum slowed in 2H [second half] due to economic headwinds (especially in Europe) and the impact of the Thai floods," Buxton added.

Peel Hunt is another fan of the stock. "The continued progression in the gross margin, the strong balance sheet and

healthy dividend increase, make us believe the recent share price weakness is a

buying opportunity," writes Thomas Rands of Peel Hunt.

The broker is not making any change to its forecasts for the current fiscal year just yet, but sees scope to do so by a smidgen on improved Healthcare margins, which have risen faster over the last two years than Peel Hunt expected.

The strong growth went down well in the market, Volex shares were up 7.5% at 09:08.

BS