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It has been a busy morning (5 October) in the stock market. Included in the action is a FTSE 250 stock that’s up 13% to far. Given the sharp move, here are the details that caused it to rise and whether I think the share could be worth buying.
Let’s get straight to it
Volution (LSE:FAN) is the stock in question. It went public back in 2014 and manufactures ventilation equipment for both the corporate and residential sectors.
Trading at 380p, the share price is now up 21% over the past year. The main driver for the bump this morning came from the release of full-year results.
The short story is that the results were strong, hence the move higher. Revenue grew by 6.6% versus last year, with adjusted operating profit also up 7.7%. This meant that reported profit before tax increased from £47.2m to £48.8m.
Impressively, the compound annual growth rate of the earnings per share since the IPO stands at 12.7%. That’s a strong statistic and shows how well the company has done over the past decade.
The future looks bright
I don’t think that the numbers alone would be enough to justify the large share price move though. What has helped this is the outlook going forward. A large part of the growth this year came from regulation regarding decarbonisation of buildings to make indoor air cleaner.
This is now a legal requirement, and so I feel this is going to be the source of future revenue and profit for the company next year. It’s a huge issue that firms will need to comply with, whatever the cost.
The other part of the optimistic outlook comes from recent acquisitions. The firm bought DVS in
New Zealand just after year end. This adds to two other purchases of companies in Europe in the year. Naturally, the full benefit of integrating these businesses will take some time. So the uptick that this will provide should be seen over the next year or two, likely boosting results even further.
Mindful of interest rates
The CEO commented that “we are mindful of the impact of higher interest rates on consumer confidence and new-build construction.” This negative impact could mean that consumers decide to hold off on purchases, which will lower demand for Volution’s products.
This is a risk going forward, but I believe interest rates are close to peaking. If this is correct, then the issue should subside over the coming months. Don’t get me wrong, I don’t see rates falling quickly. But at least sentiment should improve in that people aren’t worried about not knowing how high rates could go.
On balance, I think the company could continue to perform well, especially with the favourable regulations. Investors would do well to consider adding this stock to a diversified portfolio.
