Consumer Price Index

Consumer Price Index (CPI) data for the month of March in the UK was released this week and showed that prices are still rising, and inflation is not cooling as quickly as hoped. The main pressures were food inflation. As mentioned many times before, I am not an economist, but I think it’s good to have an interest and opinion. These opinions could create arguments, with some breaking apart my theory, but that’s what economics is all about, discussing and learning. No matter how well-educated someone in a suit looks on CNBC, there is no correct answer, and everyone has the right to get involved.

Inflation is very complex. Controlling the crowd where many buy now so as not to pay more later, I too have too recently booked a holiday for August 2024 to avoid higher prices later. Trying to control the sellers is also important. They want to cover and pass on their costs while also pushing on a little extra to improve revenue when they see the demand from the above buyers is there. It’s a catch-22 situation.

My kids recently have been banging on about Prime, an energy drink, nothing special, just a drink in a standard bottle that retails at about £2 sold by two youtube personalities, KSI and Logan Paul. Sellers have seen the hype, selling the bottles at crazy prices per supply and demand. After seeing the look on my kids’ faces, I was forced to buy two bottles for £14 in a local sweet shop. I was put on the spot, and it won’t happen again.

What got me is that this didn’t happen when I was a kid. We had crazes like marbles, Pogs and YoYo’s, but I don’t remember (may have happened) price gauging at the same levels. Creating those larger revenues seems to take priority over everything else, like customer service. Just today, Proctor and Gamble in the US released quarterly results. They made a point that revenues were up, and people rejoiced to send the stock up 3.6% at the time of writing. Less of a concern was put on falling volumes. So, those higher revenues came from increasing prices. I’m sure, as stated above, it would be so easy for these companies to take the piss and see how far they could push prices.

This was backed up by this video I came across, this is one of many I have seen from manufacturers, in this case, a chicken farmer, who are watching egg prices increase in supermarkets for the wrong reasons, and the costs are not passed down. The extra costs are with the manufacturers, but the supermarkets set the rules, and everyone has to abide by them, only taking crumbs when directed. How often have we seen the petrol pump prices not reflect the oil market? Maybe in the supermarkets’ defence, they are hidden costs we do not consider, but I believe nine times out of ten it’s down to greed.

To stop the greed will take more of a shock than previously anticipated.

VOLEX

I talked positively about Volex in September 2022. I added to my Volex position after the company released another positive trading update. My average price was 290p, and I watched it range bound for the whole of 2022 and then fall out of the range last month. I decided then to cut my position. The economic outlook for the industries Volex trades in did not look promising, and I thought I could achieve a lower price now that the stock had some downward pressure.

Volex plc is a United Kingdom-based company which manufactures and supplies power products and cable assemblies in North America, Europe, and Asia. As the world pushes forward to what appears to be solely electric, I like the industries Volex operates in, such as electric vehicles, datacentres, cables for household items and medical services. Volex is highly respected within the industry having over 100 years of experience. The company adds to growth by selecting excellent acquisitions to position itself near the customer. Nat Rothschild heads Volex. Since his takeover, Nat has turned the company around and owns 24.7%, so he is perfectly aligned with shareholders.

I woke this week to find VLX up nearly 20% on another positive trading update, back into range and back on everyone’s watch list with analysts upgrading the stock. Was I right to sell? I am a swing trader, using technical and fundamental analysis. The company had not released a trading update since the half-year results last November, and a lot has happened in the world since then. The silence made investors worry, which was reflected in the share price. We watched negative information surface regarding the main industries Volex trades in, especially datacentres, Electric vehicles and consumer goods. With no trading updates, technical analysis was the only thing I could work with. The management team I had confidence in were only assessed during a bull market from the Rothchild CEO position takeover to 2021.  I didn’t know how they would cope with a market downturn and possible recession. I am currently looking for companies and management teams with experience in this area. I don’t trade on hope. I had my stop, and that stop was honoured.

I wouldn’t be human if there weren’t a little disappointment seeing the share price up 20% of your favourite stock and not holding any shares, but onwards and upwards. The company has now proved to me what I knew all along. The strength of the team and the diversification of products enhances my analysis that Volex can weather any headwinds and has an excellent future ahead.

Recent News

The trading update covers Full Year 23, which ended 02 April 2023 and is due for release on 23rd June 2023.

The company is trading ahead of expectations despite the macro effects surrounding the business. With increased operating margins, revenue is expected at $710m. Debt has decreased slightly, and the company successfully handles inflationary pressures by passing on costs.

I like how the company makes successful acquisitions near the customer, taking share from competitors in diversified markets. Many investors look dimly at the growth built on acquisitions, but I have confidence that the management team will get it right and that a name like ‘Rothschild’ can open many doors with the network it comes with. Volex is in a good position to continue this strategy.

My Quick Valuation

I gave Volex an average Price to Earnings Ratio of 10x, discounting areas overvalued in times of market euphoria and before the new management team took over. The industry Volex operates has an average PE ratio of 15.5x. I think Volex is unloved in the investment scene. The company is growing revenue on average by around 18% yearly, operates in major growth markets and has one of the best management teams I’ve seen. This GARP (Growth at a Reasonable Price) share is worthy of a higher PE. Nevertheless, I will calculate my target based on a PE of 10x.

This gives me a price target for FY23 0f 266p, raising it to 300p for FY24. These are very conservated targets and are based on the current economic environment. Once these economic headwinds are behind us, Volex, operating in growing market trends, will be recognised the growth it can offer. I think the quote by Mark Twain fits Volex well “During the gold rush, it’s a good time to be in the pick and shovel business.”

Renold

Renold is a global leader in manufacturing industrial chains and also manufactures a range of torque transmission products sold worldwide to a broad range of original equipment manufacturers and distributors. The company has a well-deserved reputation for quality that is recognised worldwide. Its products are used in various industries, including manufacturing, transportation, energy, steel, and mining.

Renold is another excellent-run company, which has seen years of share price declines, but this could be changing. A strategic 2020 was implemented some years ago, and this turnaround is showing results.

Looking back pre the pandemic, the company knew something had to change and set about their turnaround plan to develop efficiency by moving and closing some factories, especially in China, with more emphasis on attention to detail in the manufacturing process to build brand reputation, restriction of commercial and sales teams globally, make the suitable acquisitions to enhance growth and reduce cost by a move to the alternative investment market (AIM). The management team assured investors that these changes would improve sales and margins, especially in a disappointing torque transmission division. Things did improve by the company released positive updates constantly in the last few years, and this should show a management team we can trust to make the best decisions for the company in the future.

The last set of Full Year results showed increasing revenues, improved margins, lower debt and record order books. This has been reflected in trading updates and half-year results, and things look good for the company.

The pension deficit is reducing due to bond prices and inflation, which has lingered over the company for some time. Still, with the economic outlook and rates appearing to be around for longer, this could be reduced more.

Renold has never paid dividends because it prefers growth to paying dividends, but the company’s tone looks to be changing by them stating this could be reviewed in the future. With the bright future, could we see dividend payments in FY23 or FY24? This will be a massive boost to the share price.

Another positive update from the company this week showed that things are still going in the right direction, with the company stating results will be materially ahead:

  • Revenue of £247.1m, up +26.6%
  • FY23 order intake was £260.3m (+16.3% vs FY22)
  • FY23 year-end order book: £99.5m (£84.1m FY22)
  • Net debt at year-end £29.8m (30th Sept FY22: £34m)

Many commentators on the company say that these impressive results are down to passing on costs of inflation and one-off savings. After looking back through previous results, I can see the progress made here at Renold, and I have confidence in the management team to deliver growth.

The estimated EPS for FY22 has been upgraded to 5.8p, falling back in FY24. I want to understand why earnings are due to reduce next year. I will investigate this more. It could have something to do with the lifespan of chains and previous pent-up demand from the pandemic slowdown. (Just thinking out loud)

My Target Price

As the PE Ratio has declined with the share price and earnings and shows no consistency in the confidence investors give the company, it is hard to value it on a Price to Earnings Ratio. The PE today based on FY23 earnings is 4.9x.

I think Renold deserves a higher PE due to the increased revenue and margins, paying down debt and some reductions in the pension deficit. The management team proves they know what they are doing. The risks Renold identifies in previous years, such as supply chain, energy, and commodity costs, are reducing and should show in future results where cost increases improve the bottom line more.

After more profound research, I am happy to add this to my watchlist or start a small position.

Tesla

Tesla is an American electric vehicle and clean energy company founded by Elon Musk in 2003. The company is named after the famous inventor and engineer Nikola Tesla. Tesla’s main mission is to accelerate the transition to sustainable energy and to make electric vehicles more accessible and affordable for everyone.

Tesla is best known for its electric cars, such as the Model S, Model X, Model 3, Model Y, and the upcoming Cybertruck. These vehicles are powered by high-performance batteries and electric motors, offering a zero-emission driving experience with impressive acceleration and long-range capabilities.

In addition to its cars, Tesla also produces energy storage products, such as the Powerwall and Powerpack, which can store energy from solar panels or the grid for use during power outages or peak demand. The company also develops solar panels and solar roof tiles to generate clean energy for homes and businesses.

Tesla is known for its innovative and futuristic approach to transportation and energy and has become a leader in the electric vehicle industry.

Tesla is a firstly a car company that specialises in electric vehicles and renewable energy products, but it differs from traditional car companies in several ways:

  • Emphasis on electric vehicles: Tesla primarily focuses on electric vehicles, whereas traditional car companies produce hybrid electric and gas-powered vehicles.
  • Technology focus: Tesla strongly emphasises technology, software, and innovation. They are known for their advanced driver assistance features and autonomous driving capabilities.
  • Direct sales model: Tesla has a direct-to-consumer sales model, meaning they sell their vehicles directly to customers rather than through dealerships.
  • Energy products: Besides producing electric vehicles, Tesla also offers a range of energy products, such as solar panels and home batteries, which traditional car companies do not.
  • Brand identity: Tesla has a strong brand identity centred around sustainability, innovation, and cutting-edge technology, which sets it apart from traditional car companies.
  • Overall, while Tesla is a car company, its emphasis on electric vehicles, technology, direct sales, energy products, and brand identity differentiates it from traditional car companies.

Tesla is falling from grace on the stock scene, but this has happened many times before. The main reason appears to be the CEO Elon Musk’s workload on other projects for other companies and the price drops affecting margins in a tough economic environment. In late 2022, we witnessed the stock price at $100 with many warnings that it could go lower. In the weeks following, it was another case of thinking I missed out again as I watched the price hit $200. Or did I? When a stock price is heading in the opposite direction from what I predicted, there can be a feeling of inadequacy and that I should be in the market. But then I remember I am not involved in Tesla because I feel this is just a car company, despite the above arguments. I do not understand the car industry as much as I should. Many will argue that the rollout of autonomous driving and other projects they have lined up, such as solar panels and electric storage, makes it a tech company and different from the simple car company. These projects are not fully here yet. I do not invest in ideas. Basically, the investment case is Elons’ word that these projects will materialise and be profitable to Tesla, making the company worth trillions. This is why the stock price is so affected by Elons actions.

I recently visited Finland, and every car seemed to be electric, but I did not see one Tesla. Talking to a Tesla investor, they have you believe that Tesla is the only electric vehicle manufacturer on earth and then probably threaten you with certain death for talking down their favourite company. I do admit I do not understand everything about Tesla, but I do not need to because there are thousands of stocks out there to choose from, which many investors and traders forget sometimes. My biggest gain ever was from Manpower, a global recruitment agency. I understand recruitment, and I never heard this company promoted in the trading circles because it’s not sexy.  That’s what I’m trying to say; don’t try to understand a company because you feel peer pressure to do so, no matter how much of a rising chart makes you feel you should. Stick to what you know and protect your capital.

Consumer Price Index

Consumer Price Index (CPI) data for the month of March in the UK was released this week and showed that prices are still rising, and inflation is not cooling as quickly as hoped. The main pressures were food inflation. As mentioned many times before, I am not an economist, but I think it’s good to have an interest and opinion. These opinions could create arguments, with some breaking apart my theory, but that’s what economics is all about, discussing and learning. No matter how well-educated someone in a suit looks on CNBC, there is no correct answer, and everyone has the right to get involved.

Inflation is very complex. Controlling the crowd where many buy now so as not to pay more later, I too have too recently booked a holiday for August 2024 to avoid higher prices later. Trying to control the sellers is also important. They want to cover and pass on their costs while also pushing on a little extra to improve revenue when they see the demand from the above buyers is there. It’s a catch-22 situation.

My kids recently have been banging on about Prime, an energy drink, nothing special, just a drink in a standard bottle that retails at about £2 sold by two youtube personalities, KSI and Logan Paul. Sellers have seen the hype, selling the bottles at crazy prices per supply and demand. After seeing the look on my kids’ faces, I was forced to buy two bottles for £14 in a local sweet shop. I was put on the spot, and it won’t happen again.

What got me is that this didn’t happen when I was a kid. We had crazes like marbles, Pogs and YoYo’s, but I don’t remember (may have happened) price gauging at the same levels. Creating those larger revenues seems to take priority over everything else, like customer service. Just today, Proctor and Gamble in the US released quarterly results. They made a point that revenues were up, and people rejoiced to send the stock up 3.6% at the time of writing. Less of a concern was put on falling volumes. So, those higher revenues came from increasing prices. I’m sure, as stated above, it would be so easy for these companies to take the piss and see how far they could push prices.

This was backed up by this video I came across, this is one of many I have seen from manufacturers, in this case, a chicken farmer, who are watching egg prices increase in supermarkets for the wrong reasons, and the costs are not passed down. The extra costs are with the manufacturers, but the supermarkets set the rules, and everyone has to abide by them, only taking crumbs when directed. How often have we seen the petrol pump prices not reflect the oil market? Maybe in the supermarkets’ defence, they are hidden costs we do not consider, but I believe nine times out of ten it’s down to greed.

To stop the greed will take more of a shock than previously anticipated.

VOLEX

I talked positively about Volex in September 2022. I added to my Volex position after the company released another positive trading update. My average price was 290p, and I watched it range bound for the whole of 2022 and then fall out of the range last month. I decided then to cut my position. The economic outlook for the industries Volex trades in did not look promising, and I thought I could achieve a lower price now that the stock had some downward pressure.

Volex plc is a United Kingdom-based company which manufactures and supplies power products and cable assemblies in North America, Europe, and Asia. As the world pushes forward to what appears to be solely electric, I like the industries Volex operates in, such as electric vehicles, datacentres, cables for household items and medical services. Volex is highly respected within the industry having over 100 years of experience. The company adds to growth by selecting excellent acquisitions to position itself near the customer. Nat Rothschild heads Volex. Since his takeover, Nat has turned the company around and owns 24.7%, so he is perfectly aligned with shareholders.

I woke this week to find VLX up nearly 20% on another positive trading update, back into range and back on everyone’s watch list with analysts upgrading the stock. Was I right to sell? I am a swing trader, using technical and fundamental analysis. The company had not released a trading update since the half-year results last November, and a lot has happened in the world since then. The silence made investors worry, which was reflected in the share price. We watched negative information surface regarding the main industries Volex trades in, especially datacentres, Electric vehicles and consumer goods. With no trading updates, technical analysis was the only thing I could work with. The management team I had confidence in were only assessed during a bull market from the Rothchild CEO position takeover to 2021.  I didn’t know how they would cope with a market downturn and possible recession. I am currently looking for companies and management teams with experience in this area. I don’t trade on hope. I had my stop, and that stop was honoured.

I wouldn’t be human if there weren’t a little disappointment seeing the share price up 20% of your favourite stock and not holding any shares, but onwards and upwards. The company has now proved to me what I knew all along. The strength of the team and the diversification of products enhances my analysis that Volex can weather any headwinds and has an excellent future ahead.

Recent News

The trading update covers Full Year 23, which ended 02 April 2023 and is due for release on 23rd June 2023.

The company is trading ahead of expectations despite the macro effects surrounding the business. With increased operating margins, revenue is expected at $710m. Debt has decreased slightly, and the company successfully handles inflationary pressures by passing on costs.

I like how the company makes successful acquisitions near the customer, taking share from competitors in diversified markets. Many investors look dimly at the growth built on acquisitions, but I have confidence that the management team will get it right and that a name like ‘Rothschild’ can open many doors with the network it comes with. Volex is in a good position to continue this strategy.

My Quick Valuation

I gave Volex an average Price to Earnings Ratio of 10x, discounting areas overvalued in times of market euphoria and before the new management team took over. The industry Volex operates has an average PE ratio of 15.5x. I think Volex is unloved in the investment scene. The company is growing revenue on average by around 18% yearly, operates in major growth markets and has one of the best management teams I’ve seen. This GARP (Growth at a Reasonable Price) share is worthy of a higher PE. Nevertheless, I will calculate my target based on a PE of 10x.

This gives me a price target for FY23 0f 266p, raising it to 300p for FY24. These are very conservated targets and are based on the current economic environment. Once these economic headwinds are behind us, Volex, operating in growing market trends, will be recognised the growth it can offer. I think the quote by Mark Twain fits Volex well “During the gold rush, it’s a good time to be in the pick and shovel business.”

Renold

Renold is a global leader in manufacturing industrial chains and also manufactures a range of torque transmission products sold worldwide to a broad range of original equipment manufacturers and distributors. The company has a well-deserved reputation for quality that is recognised worldwide. Its products are used in various industries, including manufacturing, transportation, energy, steel, and mining.

Renold is another excellent-run company, which has seen years of share price declines, but this could be changing. A strategic 2020 was implemented some years ago, and this turnaround is showing results.

Looking back pre the pandemic, the company knew something had to change and set about their turnaround plan to develop efficiency by moving and closing some factories, especially in China, with more emphasis on attention to detail in the manufacturing process to build brand reputation, restriction of commercial and sales teams globally, make the suitable acquisitions to enhance growth and reduce cost by a move to the alternative investment market (AIM). The management team assured investors that these changes would improve sales and margins, especially in a disappointing torque transmission division. Things did improve by the company released positive updates constantly in the last few years, and this should show a management team we can trust to make the best decisions for the company in the future.

The last set of Full Year results showed increasing revenues, improved margins, lower debt and record order books. This has been reflected in trading updates and half-year results, and things look good for the company.

The pension deficit is reducing due to bond prices and inflation, which has lingered over the company for some time. Still, with the economic outlook and rates appearing to be around for longer, this could be reduced more.

Renold has never paid dividends because it prefers growth to paying dividends, but the company’s tone looks to be changing by them stating this could be reviewed in the future. With the bright future, could we see dividend payments in FY23 or FY24? This will be a massive boost to the share price.

Another positive update from the company this week showed that things are still going in the right direction, with the company stating results will be materially ahead:

  • Revenue of £247.1m, up +26.6%
  • FY23 order intake was £260.3m (+16.3% vs FY22)
  • FY23 year-end order book: £99.5m (£84.1m FY22)
  • Net debt at year-end £29.8m (30th Sept FY22: £34m)

Many commentators on the company say that these impressive results are down to passing on costs of inflation and one-off savings. After looking back through previous results, I can see the progress made here at Renold, and I have confidence in the management team to deliver growth.

The estimated EPS for FY22 has been upgraded to 5.8p, falling back in FY24. I want to understand why earnings are due to reduce next year. I will investigate this more. It could have something to do with the lifespan of chains and previous pent-up demand from the pandemic slowdown. (Just thinking out loud)

My Target Price

As the PE Ratio has declined with the share price and earnings and shows no consistency in the confidence investors give the company, it is hard to value it on a Price to Earnings Ratio. The PE today based on FY23 earnings is 4.9x.

I think Renold deserves a higher PE due to the increased revenue and margins, paying down debt and some reductions in the pension deficit. The management team proves they know what they are doing. The risks Renold identifies in previous years, such as supply chain, energy, and commodity costs, are reducing and should show in future results where cost increases improve the bottom line more.

After more profound research, I am happy to add this to my watchlist or start a small position.

Tesla

Tesla is an American electric vehicle and clean energy company founded by Elon Musk in 2003. The company is named after the famous inventor and engineer Nikola Tesla. Tesla’s main mission is to accelerate the transition to sustainable energy and to make electric vehicles more accessible and affordable for everyone.

Tesla is best known for its electric cars, such as the Model S, Model X, Model 3, Model Y, and the upcoming Cybertruck. These vehicles are powered by high-performance batteries and electric motors, offering a zero-emission driving experience with impressive acceleration and long-range capabilities.

In addition to its cars, Tesla also produces energy storage products, such as the Powerwall and Powerpack, which can store energy from solar panels or the grid for use during power outages or peak demand. The company also develops solar panels and solar roof tiles to generate clean energy for homes and businesses.

Tesla is known for its innovative and futuristic approach to transportation and energy and has become a leader in the electric vehicle industry.

Tesla is a firstly a car company that specialises in electric vehicles and renewable energy products, but it differs from traditional car companies in several ways:

  • Emphasis on electric vehicles: Tesla primarily focuses on electric vehicles, whereas traditional car companies produce hybrid electric and gas-powered vehicles.
  • Technology focus: Tesla strongly emphasises technology, software, and innovation. They are known for their advanced driver assistance features and autonomous driving capabilities.
  • Direct sales model: Tesla has a direct-to-consumer sales model, meaning they sell their vehicles directly to customers rather than through dealerships.
  • Energy products: Besides producing electric vehicles, Tesla also offers a range of energy products, such as solar panels and home batteries, which traditional car companies do not.
  • Brand identity: Tesla has a strong brand identity centred around sustainability, innovation, and cutting-edge technology, which sets it apart from traditional car companies.
  • Overall, while Tesla is a car company, its emphasis on electric vehicles, technology, direct sales, energy products, and brand identity differentiates it from traditional car companies.

Tesla is falling from grace on the stock scene, but this has happened many times before. The main reason appears to be the CEO Elon Musk’s workload on other projects for other companies and the price drops affecting margins in a tough economic environment. In late 2022, we witnessed the stock price at $100 with many warnings that it could go lower. In the weeks following, it was another case of thinking I missed out again as I watched the price hit $200. Or did I? When a stock price is heading in the opposite direction from what I predicted, there can be a feeling of inadequacy and that I should be in the market. But then I remember I am not involved in Tesla because I feel this is just a car company, despite the above arguments. I do not understand the car industry as much as I should. Many will argue that the rollout of autonomous driving and other projects they have lined up, such as solar panels and electric storage, makes it a tech company and different from the simple car company. These projects are not fully here yet. I do not invest in ideas. Basically, the investment case is Elons’ word that these projects will materialise and be profitable to Tesla, making the company worth trillions. This is why the stock price is so affected by Elons actions.

I recently visited Finland, and every car seemed to be electric, but I did not see one Tesla. Talking to a Tesla investor, they have you believe that Tesla is the only electric vehicle manufacturer on earth and then probably threaten you with certain death for talking down their favourite company. I do admit I do not understand everything about Tesla, but I do not need to because there are thousands of stocks out there to choose from, which many investors and traders forget sometimes. My biggest gain ever was from Manpower, a global recruitment agency. I understand recruitment, and I never heard this company promoted in the trading circles because it’s not sexy.  That’s what I’m trying to say; don’t try to understand a company because you feel peer pressure to do so, no matter how much of a rising chart makes you feel you should. Stick to what you know and protect your capital.