5th Oct 2023 11:46
(Alliance News) - Investors cheered the annual results of ventilation systems firm Volution Group PLC on Thursday, as "significant" headwinds from reduced construction activity were countered by tailwinds from green regulations.
Volution shares were up 14% to 385.083 pence each in London on Thursday, the top performer in the FTSE 250 index.
The designer and manufacturer of energy-efficient indoor air quality systems said new green regulations helped to boost demand for its products, as it declared a higher payout after annual profit rose.
For the financial year that ended July 31, the West Sussex-based firm reported a pretax profit of GBP48.8 million, up 3.4% from GBP47.2 million a year prior. Revenue climbed 6.6% to GBP328.0 million from GBP307.7 million.
"This is an excellent result given what have been very challenging end-markets and can be attributed to such variables as the specific attractiveness of the ventilation category, the group's commercial strengths and the benefits from a broad geographic operating base," Davy Research analysts said.
Volution operates across markets in the UK, continental Europe and Australasia. During the year, it acquired two businesses, VMI in France and I-Vent in Slovenia, and bought DVS Proven Solutions after the end of the period.
The company said the acquisitions helped to boost its resilience by broadening its geographic reach and giving it access to "attractive new markets".
Although new build construction levels were hit by rising interest rates and falling consumer confidence, demand for its products benefitted from "ever-tightening" regulations focusing on lowering carbon emissions. The average unit value for its low-carbon solutions is "significantly" higher than the traditional ventilation solution.
"We expect the growth in our low carbon product solutions to continue to be ahead of the growth of more traditional products. The recent acquisitions of VMI in France and I-Vent in Slovenia will positively assist our metric in the year ahead as they already have a high concentration of their revenue from low carbon solutions," it added.
Volution said around two-thirds of its sales are now from the refurbishment market. Demand was strong from the public UK repair, maintenance & improvement market, given the growing awareness of health risks from mould and condensation. Private RMI was also "very resilient", the company said.
"We believe that ventilation refurbishment is far less discretionary than other product categories in buildings. Post the pandemic, we have noticed that there is a more pressing need to replace ventilation products, compared to other elements of refurbishment that can be postponed indefinitely," Volution noted.
The company also capitalised on the tendency for home occupiers to reduce their heating temperatures over winter due to higher energy costs. The resulting lower temperatures propagate the risk of mould and condensation problems, increasing the need for good ventilation, it explained.
Volution declared a final dividend of 5.5 pence per share, up from 5.0p a year prior. This brings the total dividend to 8.0p, which is 9.6% higher than 7.3p a year prior.
Davy noted: "The company starts its new financial year well placed...We believe that the stock is attractively valued with good upside based on our 454p share price target." The broker holds the stock at 'outperform'.
Berenberg was also impressed with Volution's performance. "We view this as another really good year of delivery at the company, which continues to demonstrate some of the trends seen in our more European-industrials-focused products businesses, such as diversification, strong margins and consistent delivery. We remain buyers," said analyst Robert Chantry.
By Elizabeth Winter, Alliance News senior markets reporter
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