Investment Column: Volex

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IN THIS wireless age there remains much demand for wires that transmit data - not least from the mobile phone networks themselves. Such wires now account for 44 per cent of Volex's sales, leaving its traditional power-cord business - which assembles the power cables for microwaves - representing 45 per cent of turnover.

Volex shares were mauled last year amid fears of global recession, but they have since doubled as investors came to understand the data wires business. That grew at 40 per cent in the half year, well ahead of the rest of the group's activities. Disappointingly its margins match the Volex average of about 8 per cent, but Dom Molloy, the chief executive, says Volex has the opportunity to sustain the division's sales growth rate.

Meanwhile, Volex has become the world's largest power-cord assembler following the acquisition of Belden, an American company, earlier this year. Volex is confident that Belden, which was breaking even when bought, will enjoy 8 per cent margins come year-end. Stripping out Belden, overall sales growth was 26 per cent in the period.

While Volex faces stiff competition in the data transmission market from the likes of Molex and AMP, it has been investing in cheap manufacturing in Thailand and India to enable it to supply clients with global manufacturing bases. The US and Asian markets continue to deliver strong demand.

Analysts expect full-year pre-tax profits of between pounds 22m and pounds 26m and earnings of 51p to 61p per share, putting the shares - down 45p at 737.5p - on a forward price/earnings ratio of about 14. Volex is no less competitive than its rivals, and the terrific growth of its markets suggests the shares remain undervalued.