Despite posting some decent figures in today’s half-year report, the ventilation products maker Volution (LSE: FAN) share price is weak this morning.
I reckon news flow surrounding the coronavirus is driving this stock lower. In the outlook statement, the firm said measures governments are taking to control the evolving pandemic are creating “significant” uncertainty. The directors reckon there’ll likely be a “material impact” on the global economy. That implies a hit to trading, because there’s a large element of cyclicality to the Volution business.
Trading well in H2 so far
Although it’s hard to forecast, management believes there’s potential for adverse impacts on both supply and demand for the company. But there is “limited” sales exposure to some of the hardest-hit countries such as China, Italy and South Korea. Meanwhile, the firm is taking actions to “monitor and secure” its supply chain.
And things are going well so far. In the second half of the trading year, performance has continued “on a similar basis” to the first half. And several new product launches could boost sales over the next few months.
Looking beyond the current macro-economic challenges, the lead directors think regulatory drivers are “increasingly supportive” of energy-efficient ventilation solutions. This could augur well for the business over the medium term.
Prior to the crisis, Volution had been growing well. The five-year record is one of generally rising revenue, earnings, cash flow and shareholder dividends. And today’s numbers are impressive. In the first half of the trading year to 31 January, revenue at constant currency rates rose 5% compared to the equivalent period the prior year. In terms of the adjusted figures, operating cash flow shot up almost 44% and earnings per share moved 6.5% higher.
Net debt lower
There was also good news regarding net debt, which dropped by almost 14% to just over £60m on a like-for-like basis. I’m pleased to see progress with lowering debt because if trading conditions get tough, the firm will need its interest payments to be as low as possible.
The directors slapped 6.9% on the interim dividend, which suggests there’s a measure of confidence in the outlook, despite the pandemic. Meanwhile, one of the things I admire about Volution is the way operations are growing geographically. In H1, 46% of sales came from the UK, 30% from Europe (excluding the UK and Sweden), 13% from Australasia, 9% from Sweden and 2% from the rest of the world.
I’m not going to try to pin down the valuation on this one until there are clear signs that the share price has ended its plunge. But this is high up my watch list, and I’d be keen to examine it in more detail later with a view to picking up a few of the shares.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.