Velocity Composites – todays Interims from aerospace materials supplier, offers cheap buying opportunity at 28p, brokers TP 60p

25.06.2025

This morning’s Interim Results, to end-April, from Velocity Composites (LON:VEL), the supplier of composite material kits to aerospace, look really quite positive to me, however its shares have eased 2p to 28p, which offers an inexpensive route into the developing group’s equity.

For the six months the £15m-capitalised group’s revenues were £10.4m (£10.7m), but with greatly improved margins of 29.0% (22.5%) after a tighter control of overheads and upon its working capital.

Its Interim loss was reduced from £1.1m to just £0.6m.

During the period the group renewed its contract with a leading UK defence contractor, while I understand that there are active bids, with new and existing customers operating in the defence and civil markets, are in progress across the US and Europe to deliver a growing pipeline of long-term opportunities.

Management Comment

Chairman Andy Beaden stated that:

"This is a solid set of results, on the back of significant growth in the past two years and difficult current market conditions. 

Operational improvements are enabling the business to move into profitability and cash generation. 

The huge potential for future profitable growth is underpinned by our embedded technologies and published production ramp-up plans from major end-market OEMs.

The Board remains confident that Velocity's proposition for its customers will deliver shareholder value over the medium to long-term."

The Business

Based in Burnley, UK, Velocity is the leading supplier of composite material kits to aerospace, that reduce costs and improve sustainability. 

Customers include Airbus, Boeing, and GKN.

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.

A value-add supplier of composite material kits and supply chain management solutions, principally to the aerospace industry.

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.

The company has recently established a facility in Alabama, USA, to support new and existing customers.

Broker’s Views

Analysts Mark Howson and Paul Richards, at Dowgate Capital, have a Buy note out on the group’s shares, with a Target Price of 60p.

They state that:

“For 1H 2025, Velocity has delivered the expected 1H revenue of £10.4m (2024: £10.7m), with the Group reporting the first positive EBITDA outturn since before the pandemic.

Importantly the gross margin improved, with pricing now having recovered the full impact of prior inflationary pressures and benefiting from improved internal efficiencies.

With the outlook reiterating that the Group remain positive, we are maintaining our FY 2025E and FY 2026E forecasts, which show that the Group is expected to make a pre-tax profit in 2026E as the expected ramp up of industry programmes is expected to benefit the Group more fully by then.

While the current year has been impacted by the slower start in the industry of the planned A350 ramp up and customer-driven delays in signing off the final regulatory approvals in the USA (already known), the Group is expected to be net cash and should move forward again in 2026E.”

Their estimates for the current year to end-October showing £23.0m (£23.0m) revenues, with an almost halved pre-tax loss of £0.7m (£1.3m) and negative earnings of 0.7p (loss 2.4p) per share.

However, in 2026 they go for £26.6m revenues turning the company into £0.3m adjusted pre-tax profits, with earnings of 0.5p per share.

James Wood, analyst at Canaccord Genuity Capital Markets, also rates the group’s shares as a Buy, with a 50p Target Price.

His estimates are for £23.0m sales this year and £26.6m next year, with the £0.7m estimated loss turning into a £0.3m profit, he sees a 1.0p per share loss in earnings in 2025 then up to 0.5p positive next year.

Discussing the group’s Outlook they consider that:

“Despite short-term demand volatility, Velocity reiterates it is on track to achieve market expectations for FY25E EBITDA and anticipates turning cash flow positive during H2.

While we expect customer specific issues to work their way through, the long-term opportunity continues to grow with new and existing customers.

This includes new opportunities to support the supply chains of Boeing and Airbus. It also includes a growing pipeline within the defence sector in Europe and the US.

A long-standing UK defence contract was recently renewed while a number of active bids are in progress.”

My View

Velocity's move to create a US manufacturing footprint leaves it well-positioned to benefit from strategic supply chain onshoring, while there are growing opportunities in the defence sector.

These shares, now at just 28p, could so easily double in price and still offer strong upside – it has the right products and is looking to supply into the ‘hot’ defence and aerospace sectors.

Get ready to increase holdings if they fall further.

(Profile 25.01.25 @ 25.50p set a Target Price of 35p*)

Asterisk * denotes that Target Price has been achieved since Profile publication.