Unsurprisingly, the acquisition meant that the company’s net debt increased during the first half of the financial year. It now stands at $174m, up from $104m six months prior, but still equates to a modest net gearing ratio of around 56pc. Alongside a net interest coverage ratio of five, the company appears to have the financial means to overcome an uncertain near-term outlook.
As a small company, Volex is undoubtedly less protected against economic and industry-related challenges compared with its larger peers. But with a wide margin of safety still present despite its share price surge, it continues to offer investment potential based on its medium-term growth targets and ongoing strong performance. Hold.
Questor says: hold
Ticker: VLX
Share price at close: 309.5p
Update: Totally
While Volex has soared, our holding in healthcare services provider Totally has slumped. Its shares are down by 43pc since the release of its half-year results at the end of November. Its capital loss since being added to our IHT portfolio in January 2021 now stands at 81pc. At one time, the company’s shares showed a paper profit of 74pc following our notional purchase.
This provides yet further evidence of the high-risk nature of small-cap stocks.
The company’s interim results showed that sales declined by 21pc due largely to a tough operating environment, with rising costs and recruitment difficulties proving persistent. This meant the firm made a pre-tax loss of £1.9m in the first half of the year, with the loss of contracts proving to be costly.
Further difficulties would be unsurprising in the short run, which means additional share price falls cannot be ruled out.
However, the company is seeking to become more efficient via a reorganisation, with £0.5m of cost savings having been delivered in the first half of the year. Its net debt-to-equity ratio of just 10pc highlights the importance for companies, particularly smaller businesses, to limit their borrowings due to the potential for unforeseen challenges.
With demand for healthcare services set to rise over the long run, and inflation due to fall in the coming months, the prospects for Totally are likely to ultimately improve. Its low levels of debt and cost-saving strategy mean we will continue to hold in anticipation of an eventual share price recovery. Hold.
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