07.01.2025
Velocity Composites – this aerospace sector supplier will end its years of losses in 2025, its target is to quadruple turnover to £100m by 2028 on a 10% margin, ahead of its finals on 29th January its shares, at 25.50p, could be a steal!
In the last four years this £14m capitalised group has lost a total of some £7.5m as it has been developing its products.
On the face of it that makes any investment in the group to be subject to questioning.
However, with its shares now at around 25.50p, it could well prove to be a cracker of a 2025 bargain.
The Business
Based in Burnley, UK, Velocity Composites (LON:VEL) is the leading value-add supplier to the aerospace sector of composite material kits that reduce costs and improve sustainability.
By using Velocity's proprietary technology, manufacturers can also free up internal resources to focus on their core business.
Velocity has significant potential for expansion, both in the UK and abroad, including into new market areas, such as wind energy, urban air mobility and electric vehicles, where the demand for composites is expected to grow.
Underpinned by proprietary technology, Velocity's fully outsourced service enables prime OEMs and Tier 1 composite aerostructure manufacturers to improve raw material efficiency and accelerate production rates.
To support new and existing customers, the company has recently established a facility in Alabama in the USA.
The group’s customers include BAE Systems. Hamble Aerostructures, Safran Nacelles and GKN, who in turn supply to the major OEMs including Airbus, Boeing, GE, Rolls Royce and Lockheed Martin.
Trading Update
On Thursday 12th December the group issued a Trading Update for the year to end-October.
It guided that the 2024 Final Results could show out better than market expectations.
The company noted that delays to planned production rate increases across the global aerospace industry, had a short-term impact on the Group's expected growth in FY24.
However, it also stated that the two largest civil aircraft manufacturers were reporting record order backlogs and positive book-to-bill ratios in 2024.
Leading civil aircraft manufacturers are forecasting increased aircraft deliveries in 2025, in an expected return to more predictable and higher monthly production rates, which in turn will flow down to Velocity's order books.
As an example, A350 production is planned to double by 2028, the largest programme in the UK to which Velocity is a supplier.
Management Comment
At that time CEO John Bridges stated that:
"This has been another year of double-digit growth for Velocity.
We have weathered the production challenges facing the global aerospace industry, and we are entering 2025 in a healthy position to support customers as they look to ramp up production.
The migration to composite materials in newer aircraft models continues, as OEM's focus on improved sustainability, as well as an expected increase in Western defence expenditure, creates more opportunities for Velocity."
The Equity
There are 53,993,366 shares in issue.
Larger holders include Amati Global Investors (10.46%), CEO Jonathan Bridges (9.94%), Seneca Partners (8.26%), Christopher Banks (7.95%), Gerard Johnson (7.85%), and Rathbones (5.44%).
Brokers Views
At Dowgate Capital, its analysts Mark Howson and Paul Richards view the group’s shares as a Buy, while placing a 60p Target Price on the stock.
For the year just ended their estimates are for revenues to have risen from £16.4m in 2023 to £22.8m, while more than halving the pre-tax loss from -£3.1m to just £1.5m down for the year.
They look for the current year to end-October 2025 to report revenues of around £27.0m, helping to see the group actually breakeven for the period.
They state that they believe that the group remains a particular beneficiary of the Airbus plan to double the monthly production of the A350 programme (2025 to 2028), as well as enhanced civil and military programmes across the industry.
Ultimately, they believe that the group’s growth will be a beneficiary of increased outsourcing in favour of Velocity Composites’ cost-effective solution.
Analyst James Wood, at Canaccord Genuity Capital Markets, also rates the group’s shares as a Buy, with a Target Price of 60p.
For the 2024 year, Wood estimates a pre-tax loss of £1.3m on the back of £23.0m sales.
His current year figures show £27.0m of turnover and also a breakeven trading period.
The analyst considers that the group’s shares look materially undervalued, especially as it scales up its revenues and sustainably builds its EBITDA margin towards its 10% target.
My View
It is always exciting when you can witness a smaller quoted company progressing from years of development losses and breaking into potential profitability.
The group has a target of hitting £100m of yearly revenues by 2028, with an EBITDA margin of 10%.
If that is achieved, then I can see its shares, now just 25.50p, easily being traded higher than the brokers own Target Prices.
They were up to 68.55p just two years ago, so the price climb may not be so outlandish to deter investors from a small dabble.
I now set an easy Target Price of 35p.
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