Midas Share Tips: Investing in Volex with Nat Rothschild could pay off

The Rothschild family is one of the wealthiest in the world, with a fortune running into hundreds of billions of pounds. 

Nat Rothschild, 51-year-old son of hereditary peer Lord Rothschild, is personally worth around £1billion and expected to inherit considerably more. 

In late 2008 and 2009, this exceptionally well-off scion of the Rothschild dynasty acquired a 25 per cent stake in a small and struggling AIM-listed manufacturer – Volex. 

Chairman: Nat Rothschild, with wife Loretta, helped revive cable firm Volex

In 2015, Rothschild joined the board and, within months, he was chairing the business. Seven years later, he is still in situ, he remains the biggest shareholder and the firm has been turned round. 

Volex shares, worth less than 50p apiece when Rothschild moved in, rose to more than £4.50 last autumn. Today, they are £2.63 and should move considerably higher over the coming years. 

Volex makes power cables and bespoke electrical kit for use in an array of end products, including electric cars, CT scanners, ventilators, laptops, even army tanks. Around 275million power cords are sold each year, ranging from basic connections for irons or fridges to complex cables that enable data centres to quadruple their output and use less energy than conventional kit. 

The company’s customers prefer to remain anonymous, but they are thought to include Tesla, Amazon, Apple and Siemens, as well as top international manufacturers and government defence contractors. 

These firms tend to choose Volex for three very clear reasons – quality, price and location. The group has 19 sites worldwide, strategically positioned in places such as Turkey, Poland, Indonesia, India and Mexico, where costs are low but the end-products are tip-top. 

For companies based in North America and Europe, sourcing from countries close by reduces their reliance on China and cuts transport costs. For multinationals, Volex’s spread of manufacturing bases means the company can act as a one-stop shop for their cabling or other electrical needs. 

At the same time as expanding the Volex network, Rothschild has made a deliberate push into higher-value areas, where the firm can charge a bit more in exchange for quality merchandise. This approach has helped the business to move from annual losses to sustained profits growth, celebrated by a resumption of dividend payments three years ago, after a long period of abstinence. 

Annual figures to April were robust and they were accompanied by an ambitious plan to double revenues to $1.2billion (£1billion) and take profits from $56million to approaching $120million by 2027 (the company reports in dollars because most sales are made in the US currency). The direction of travel was confirmed with an upbeat trading update last month, stating that results for the three months to July had been encouraging and that each division within the company was making progress. 

Looking ahead, Volex should prove better able than many to withstand economic pressures. Demand for electric vehicles is expected to continue to rise, with a consequent increase in the need for Volex’s charging kit. Ageing populations in many parts of the world suggest a persistent increase in demand for medical equipment, powered by Volex components. Data use continues to grow and data centres are constantly striving to do more with less, so Volex’s top-of-the-range cables should prove popular. And even in consumer products, where demand may well be hit in the coming months, Volex is winning market share, so revenues should remain stable at the very least. 

The firm is also hoping to grow by acquisition. Several deals have been completed in recent years and Rothschild intends to continue in the same vein, buying companies that take Volex into new parts of the world, add new products or consolidate the group’s position. 

Brokers expect sales and profits to increase steadily over the next three years, with the dividend up 11 per cent to 4p in 2023, rising to 4.8p by 2025.

Midas verdict: Rothschild could have put his money anywhere. He chose to invest not just cash but also time and energy in Volex, attracted by its 130-year industrial history and the chance to turn a troubled business into a something great. Huge strides have been made, but there is plenty more to come. At £2.63, the stock is a buy. 

Traded on: AIM Ticker: VLX Contact: volex.com or 01256 442570 

This post first appeared on Dailymail.co.uk