Volex (LON:VLX): A Strong Buy in the EV and Consumer Electronics Growth Lane

Volex (LON:VLX), a specialist manufacturer of power and connectivity solutions, has emerged as a standout performer in the manufacturing sector, driven by strong execution in high-growth markets like Electric Vehicles (EVs) and Consumer Electricals. With revenue surging 19% to $1.09 billion in FY2025 and margins holding firm at 9.8%, the company is positioned to capitalize on structural tailwinds while meeting its long-term strategic targets. This analysis underscores why Volex is a compelling "Strong Buy" for investors seeking exposure to innovation-driven sectors.

Financial Outperformance: Growth and Margin Resilience

Volex's FY2025 results reflect a blend of organic momentum and strategic acquisitions. Key metrics include:
- Revenue Growth: The 19% year-on-year increase to $1.09 billion was fueled by 40% growth in the EV segment (now $172.9 million in revenue) and 9.6% expansion in Consumer Electricals ($257.0 million). These divisions, along with Off-Highway and Data Centre projects, drove organic growth of 11.1%, while the Murat Ticaret acquisition added $84.8 million in FY2025.
- Margin Stability: Underlying operating margins held at 9.8%, the upper end of its 9–10% target range, despite inflationary pressures. This resilience stemmed from pricing power, automation investments, and operational efficiencies like site consolidations.
- Profitability: Net profit rose 25% to $64.3 million, with free cash flow of $42.2 million funding dividends and growth initiatives.

Sector Tailwinds: EVs and Consumer Electricals Lead the Charge

Volex's growth is intrinsically tied to two high-potential sectors:
1. Electric Vehicles: The EV segment's 40% revenue growth in FY2025 underscores Volex's success in securing contracts for advanced high-voltage connectors and charging solutions. Notably, the company is a key supplier to Tesla's North American Charging Standard (NACS) ecosystem and has expanded its footprint in North America, where EV demand is booming.
- Why It Matters: EV adoption is accelerating globally, with markets like the U.S. and Europe offering tax incentives and infrastructure investments. Volex's technical expertise in mission-critical components positions it to capture a growing share of this $200 billion market.

1. Consumer Electricals: The division's 9.6% growth reflects Volex's ability to maintain competitiveness through automation and global manufacturing flexibility. Its power cord solutions serve major electronics brands, and the company has mitigated supply chain risks by relocating production to Mexico and Türkiye.

Strategic Execution: Long-Term Targets Are Achievable

Volex's five-year strategy focuses on scaling in high-margin markets while maintaining operational excellence. Key pillars include:
- Geographic Diversification: A 27-factory footprint across 25 countries ensures proximity to customers and mitigates geopolitical risks. North America's revenue surged 35% to $503.5 million, while Europe grew 16% post-Murat Ticaret integration.
- Acquisition-Driven Growth: With 12 acquisitions in seven years, Volex has expanded its capabilities in niche markets like Off-Highway (agricultural/construction equipment). The Murat Ticaret acquisition alone added $244.2 million in revenue.
- Operational Improvements: Over $14 million was invested in automation and digitalization in FY2025, yielding productivity gains. The company aims to reduce costs further through site rationalizations, such as consolidating its China operations to two factories.

Investment Case: Strong Buy with Upside Potential

Why Now?
- Valuation: At a P/E of 18x (vs. a 5-year average of 15x), Volex is fairly priced but offers room for multiple expansion as margins stabilize.
- Dividend Attraction: The dividend rose 7.1% to 4.5 pence per share, with a payout ratio of 36%, leaving ample room for growth.
- Upside Catalysts:
- FY2026 pipeline momentum in EVs, Data Centres, and Off-Highway.
- Potential for further acquisitions in underserved markets.
- Shareholder-friendly capital allocation (ROCE of ~20%).

Risk Factors:
- Supply chain disruptions or commodity price spikes could pressure margins.
- EV adoption delays or regulatory hurdles in key markets.

Conclusion: A Buy with Long-Term Vision

Volex's FY2025 results demonstrate that its strategy to dominate EV and Consumer Electricals markets is working. With a 21% revenue CAGR over three years, margin resilience, and a disciplined acquisition approach, the company is well-positioned to meet its long-term targets. Investors seeking exposure to EV innovation and global manufacturing agility should consider Volex a "Strong Buy," with a 12-month price target of £18.50 (vs. current ~£15.20).

Recommendation: Strong Buy – Volex combines growth, profitability, and strategic foresight, making it a standout play on the EV revolution and consumer tech demand.