- Shares gain on trading update
- New building legislation provides a tailwind
- Firm confident of maintaining margins
Ahead of its AGM (annual general meeting), indoor ventilation firm Volution (FAN) posted a positive update on trading over the four months to the end of November.
Volution shares, which have had a see-saw week, rose 3% to 361p against a weak market backdrop.
WHY ARE THE SHARES UP?
While many house builders and building materials firms have issued cautious or negative statements regarding current trading and the outlook for next year, Volution is benefitting from environmental and health regulations which are driving demand in the residential market here and in Europe.
Sales at the group level were up 7% during the period to £112 million, with organic growth of 5.5% due to a combination of volume and price increases.
In the UK, organic revenue growth was 3.8% as a slower commercial market offset strong gains in the residential market, while Continental European sales rose 6.4% and Australasian sales were up 8.5% on an organic basis.
The firm said given the economic environment ‘it is pleasing that since the year-end we have continued to see sales and profits track ahead of the same period last year’.
In the financial year to July the firm posted an EBIT (earnings before interest and tax) margin of 21%, and management is confident its focus on customer service, strong brands, attractive product portfolio and pricing power will ensure it can continue to deliver on its targets.
REGULATION HELPING TO DRIVE SALES
The company is helping to formulate UK legislation on improving air quality, with its Future Homes Hub running a task group to contribute to a planned formal consultation on the 2025 Future Homes Standard.
There has also been a public consultation on the Decent Home Standard for the private rented sector and the Secretary of State for Housing has called on councils and social housing providers to act on housing conditions after shocking reports of homes rife with damp and mould.
In Continental Europe, the Energy Performance of Buildings directive is driving sales of energy-efficient ventilation products including heat-recovery systems, while in Australia the National Construction Code has been updated to improve ventilation in new buildings and avoid the health risks associated with condensation.
WHAT THE EXPERT ARE SAYING
Analysts at Berenberg described Volution as ‘a best-in-class operator which has made significant progress in diversifying, scaling and improving the quality of its operations in recent years’.
While today’s update hasn’t led to a change in forecasts, the investment bank is sticking with its Buy recommendation and 460p price target.
Graeme Kyle at Shore Capital has also left his forecasts unchanged as earnings are ‘underpinned by state regulation continuing to tighten around de-carbonisation measures and indoor air quality’.
Kyle calls the Volution’s current valuation ‘modest’ given the firm’s high and sustainable return on invested capital and prospective earnings growth out to 2025.
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