Castlefield AIM stock story - Volex Group

By David Elton

In this latest Castlefield featured stock story, we cover AIM-listed Volex Group, the power cord and data cord producer that's helping to drive the energy transition through its contribution to wider electrification. 

 

We recently made an investment into AIM-listed Volex Group PLC. Volex is an international company which makes power cords, data cords and cable assemblies (or wiring harnesses) for applications ranging from household items to complex medical equipment, data centres and vehicles.

Volex is helping to drive the energy transition through its contribution to wider electrification and its presence in new, more energy efficient technologies. The company operates from nineteen manufacturing locations and a global workforce of more than 8,000 spread across 22 countries.

Volex is helping to drive the energy transition through its contribution to wider electrification

In 2015, a new leadership team came into the business and has really turned it around; management made a deliberate shift away from low margin, commoditised products such as basic plugs and cables and into much higher-value areas. Over the last few years, acquisitions have been central to corporate strategy and the company has a good track record of executing on deals. As well as bringing forward new products and consolidating its market position, these acquisitions have taken Volex into new parts of the world. The most recent purchase was of Murat Ticaret, a Turkish manufacturer of complex wiring harnesses and battery cables for a range of end uses including buses, agricultural vehicles and fork-lift trucks. The company supplies products into the following markets:

  • Electric Vehicles (e.g. charging cables)
  • Consumer Electricals (e.g. domestic appliances, laptops)
  • Medical (e.g. diagnostic equipment, medical devices)
  • Complex Industrial Technology (e.g. data centre applications)
  • Off-Highway (e.g. diggers, tractors, forklifts)

Volex’s customers are generally Original Equipment Manufacturers, or OEMs, many of which are household names in their own markets. Volex tends to be selected by customers for three main reasons – quality, price and location. Volex is well positioned to serve and engage with customers around the globe with its production and distribution facilities across three continents. From a business standpoint, we like Volex’s presence in growth markets, such as electric vehicles and medical equipment as well as its scope to increase sales and profit margins both organically and through further acquisitions.

In June 2022, the board launched a new five-year strategic plan setting out a target to grow revenues to $1.2bn by the end of the 2027 financial year, including $200m from new acquisitions - they report in US Dollars - while maintaining operating margins in the range of 9-10%. Recently-announced interim results confirmed that, despite operating in a tough environment, they are probably ahead of schedule with the plan.

Written by David Elton

 

With investment, capital is at risk.