Volution chief executive Ronnie George has been at the helm for eight years and has worked at the ventilation group for even longer. He knows the company behind brands such as Vent-Axia and Airtech inside out. So, when he buys and sells shares, investors take note.
In October 2018, when Midas last looked at Volution, George had just spent £17,000 buying 10,000 shares at £1.70 each. The boss described the trade as a ‘protest’, a signal that he believed the shares were significantly undervalued.
By December 2019, Volution shares were 58 per cent higher at almost £2.70 and George’s purchase looked quite canny.
Fan-tastic: Volution chief executive Ronnie George has been at the helm for eight years and has worked at the ventilation group for even longer
George then decided to halve his stake in the company and on January 24, he and his wife sold just over three million shares at £2.30 each, pocketing £7million in the process. The coronavirus still seemed like a local Chinese problem at the time. Now George looks smart once again, as Volution shares have fallen back to £1.66.
George still owns 1.5 per cent of Volution and the 50-year-old said his January share sale was designed to create a more balanced investment portfolio. Diversification is almost always sensible when it comes to investment, but fellow shareholders may wonder whether they should follow George’s lead, especially given the events of recent months.
In normal times, the company derives just under half its turnover from the UK, the rest coming from Northern Europe, Australia and New Zealand. UK sales slumped 70 per cent in April. But by July they were just 20 per cent lower than in the same month last year.
There has been continued improvement in recent weeks and George believes the pace of growth is likely to be higher in coming months than before the pandemic erupted. There is also good momentum in Volution’s other markets.
Most of Volution’s sales are to contractors, who are either building new homes or refurbishing existing properties. Demand has been particularly strong in the refurbishment camp lately, as people spend more time at home and want to upgrade their living space.
George is optimistic about sales of new homes too, bolstered by cheap mortgages, the Help to Buy scheme and cut-price stamp duty.
Over time, the company should benefit from two trends. First, regulators increasingly demand that homes and commercial buildings are properly ventilated for health, safety and environmental reasons.
Second, it is increasingly clear that the better a property is ventilated, the less likely it is to harbour harmful viruses. Volution leads the way in several products, including fans that bring in fresh air without pushing out all the central heating.
The group’s financial year ended on July 31 and George expects to announce a 7 per cent fall in sales to £217million, with analysts predicting a 23 per cent slide in profits to £30.8million. In the current year, sales of £220million are forecast, with profits of £35million.
The 2020 dividend was cancelled but 4.2p is pencilled in for 2021, compared to 4.9p last year.
Midas verdict: Midas recommended Volution in 2014, shortly after the business was listed and the shares were £1.55. Having shot up by December of last year, the stock was hammered by Covid-19 concerns and is now just 7 per cent higher than it was six years ago. The business seems to making good progress, but economic prospects remain uncertain. Perhaps the best approach for shareholders is to follow George’s lead – cut their holdings by half and diversify.
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