Yet another boring company has been acquired for the Obliquity London portfolio. This time it is Volex, a cable manufacturer. I stumbled on it for my stamp collection of UK small caps — that I’ve taken the occasion to publish as well — but realised that it was actually a good company for the main portfolio.
It is a small cap in market capitalisation only, at GBP 60 millions, despite being an operation with eight thousand employees and a turnover north of USD 500 million. It had somewhat haphazard profitability in the recent past but seems to be on the right path. Within its niche it’s quite well diversified geographically and in clients and projects. It’s also hard to sink as a business as once they’re the chosen supplier for a product they’re likely to remain so for many years, so slow decline is more likely as a worst case scenario than sudden collapse. It passes the Obliquity criteria very easily, only lacking a bit in data on the employee treatment one though from hints it seem OK for the sector.
I’m not usually looking that closely at valuation given that for large/mid caps most of the obvious public financial data is usually reflected in the price, but here it seems unusually cheap. The ratio to profits are already good as they stand now, and if you assume it’s going to make normal profits for its size in the future it’s exceptionally cheap.
A bit of excitement comes from the price chart:
The price seems stuck at a suspiciously round £1 since January, along with falls previous, on bad news presumably. It looks like it could be a large seller which could explain why it seems so keenly priced despite improving news and the low price. Let’s just hope the seller, if it is that, does not know something we don’t.
The acquisition was funded from accumulated dividends and a partial sale of SIG plc, the equally boring packaging company, which was just top sliced back to original weight according to the systematic rule (value increase of 50% above that of portfolio).