Today’s trading update highlights a strong performance in FY23, with revenue and operating profit ahead of market expectations. Volex looks to have exited FY23 in a robust position supported by its diverse growth markets focus and strong customer relationships, built on recognised levels of service and reliability. In common with the broader sector, the Group is seeing signs of supply chain normalisation, but still healthy underlying order positions, and reduced inflationary cost pressures. Pre-IFRS net debt has fallen $22m in H2 taking the covenant leverage to just 1x. On all valuation measures Volex looks attractive with the shares now trading at a c.18 month low. Furthermore, FCF has now turned positive after the prior effects of increased working capital and higher capex in FY22 and H1FY23. The majority of capex is directed to short (<2 years) payback projects that are customer led and focused on capacity expansion against new business. The expected effects on ROCE are not fully reflected in forecasts. We re-iterate our Buy recommendation and TP of 325p.
