Canaccord Genuity lowers target price on Volex

Canaccord Genuity noted that Volex's performance in its recently wrapped up trading year was in line with expectations, with full-year revenues up 39% year-on-year at $615.0m and adjusted pre-tax profits growing 24% to $51.0m in "a record year" for the company.

In terms of the group's five-year plan, Canaccord said Volex's new 2027 targets would take revenue to $1.2bn, with a 9-10% margin range, with at least $200.0m of this revenue target to be M&A driven.

"This means Volex would require revenue to grow by 10% CAGR to reach its organic target ($1.0bn), which in our opinion provides an ambitious but achievable goal. We think pricing power, production efficiencies, and accretive M&A mean margin ambitions could prove to be prudent, albeit we are cognisant that EV growth will likely dilute the mix," said Canaccord.

While the Canadian bank maintained operating margin expectations for Volex's 2023 and 2024 trading years, which were set towards the bottom of the company's 2027 target range, it also noted that higher interest charges had driven adjusted pre-tax profits 2-3% lower and guidance that the firm's tax rate will increase also resulted in a roughly 10% adjusted earnings per share reduction for both years.

"On a cal. 2022E basis Volex trades on a P/E of 11x and EV/EBITDA of 7x vs sector averages of 18x and 11x, respectively. Our sector average-based TP of 380.0p (a market-driven decrease from 440.0p) would see this unwarranted discount, in our opinion, eliminated," concluded Canaccord, which also reiterated its 'buy' rating on the stock.

Reporting by Iain Gilbert at Sharecast.com