Broad based demand drives upgrade

XP Power 31 July 2017 Update
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XP Power

Broad based demand drives upgrade

H117 results

Tech hardware & equipment

31 July 2017

Price

2,500p

Market cap

£475m

$1.3:£1

Net cash (£m) at end H117

8.0

Shares in issue

19.0m

Free float

90.6%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.1)

(0.5)

55.3

Rel (local)

(6.7)

(0.1)

40.1

52-week high/low

2,680p

1,512p

Business description

XP Power is a developer and designer of power control solutions with production facilities in China, Vietnam and the US, and design, service and sales teams across Europe, the US and Asia.

Next events

Q3 trading update

9 October 2017

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

XP Power is a research client of Edison Investment Research Limited

XP reported a strong performance in H117 and is seeing good demand across its customer base. Based on the order intake in H1, management has a more positive outlook for FY17 and we have upgraded our forecasts accordingly. Our normalised EPS forecasts increase by 8% in FY17 and 3% in FY18. To support future growth, XP is investing in manufacturing capacity in Vietnam and engineering resource, and continues to look for suitable acquisitions.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15

109.7

25.7

104.3

66.0

24.0

2.6

12/16

129.8

28.6

115.3

71.0

21.7

2.8

12/17e

155.8

33.2

133.5

75.0

18.7

3.0

12/18e

160.7

34.6

135.8

79.0

18.4

3.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

H117 results reflect continued strength in Q2

XP grew revenues 33% y-o-y in H117, with constant currency growth of 18%. The company saw good demand from all end-markets and geographies, and closed H117 with a backlog that was 20% higher than at the end of FY16. Due to currency effects and cost reallocation, while gross profit increased 27.5% y-o-y, gross margin declined 2pp to 46.9%. Normalised operating profit increased 31.8% y-o-y to achieve a margin of 21.7%. Cash generation was strong in the period, with net cash growing to £8.0m at the end of H117 versus £3.7m at the end of FY16.

FY17 results likely to be ahead of expectations

After the high level of order intake in H117, the company now anticipates that FY17 results will be ahead of its expectations. We have increased our underlying revenue growth assumption for FY17, resulting in an increase to our revenue forecast of 3.9% in FY17 and 2.5% in FY18. Taking into account a slightly lower gross margin, we increase our FY17e normalised EPS by 8.0% and FY18e by 3.4%. We view our underlying growth forecast of 5% for FY18 as conservative – if order intake continues at a similar pace in H217 we see scope for further upgrades. Despite the setback of the aborted deal in H1, the company continues to look for acquisitions to broaden its product offering and engineering resources.

Valuation: Earnings growth to drive upside

The stock is trading on a P/E of 18.7x FY17e and 18.4x FY18e normalised EPS, in line with its power converter peers, but at a discount to UK electronics manufacturers, despite its better profitability. Evidence of accelerating earnings growth could reduce this discount. The forecast dividend yield of 3.0% in FY17 is ahead of its peers. Strong forecast cash generation should enable the company to invest in further growth, either through internal product development or bolt-on acquisitions, while maintaining its high level of profitability.

Review of H117 results

Exhibit 1: Half-year results

£m

H116

H117

y-o-y

Revenues

60.3

80.2

33.0%

Gross profit

29.5

37.6

27.5%

Gross margin

48.9%

46.9%

(2.0%)

EBITDA

15.2

19.9

30.9%

EBITDA margin

25.2%

24.8%

(0.4%)

Normalised operating profit

13.2

17.4

31.8%

Normalised operating margin

21.9%

21.7%

(0.2%)

Reported operating profit

13.0

14.5

11.5%

Reported operating margin

21.6%

18.1%

(3.5%)

Normalised PBT

13.1

17.3

32.1%

Normalised PAT (after minority interest)

10.0

13.0

30.0%

Reported net income (after minority interest)

9.8

10.9

11.2%

Normalised diluted EPS (p)

52.1

67.3

29.1%

Reported basic EPS (p)

51.6

57.2

11.0%

Net debt/(cash)

6.0

(8.0)

N/A

Source: XP Power, Edison Investment Research

XP Power has reported a strong performance for H117, with revenue growth of 33% year-on-year. On a constant currency basis, revenues grew 18% y-o-y. Gross profit increased 27.5% y-o-y, although the margin declined two percentage points. This was for two reasons a) a 110bp hit from the currency impact of the higher proportion of costs of sale denominated in US dollars (c 90%) versus revenues (c 81%), and b) a 100bp hit from the reallocation of EMCO costs from operating expenses to costs of sale (c £0.8m). EBITDA increased 30.9% y-o-y with a small decline in the EBITDA margin. Underlying operating costs (including depreciation and amortisation) increased 24% y-o-y through a combination of inflationary increases, currency effects and higher headcount than a year ago. This was partially offset by £0.8m of EMCO costs being reallocated to cost of sales. XP continues to invest in engineering resources to address the more complex segment of the market, where there is less competition from Asian suppliers.

XP incurred an exceptional charge of £2.8m for aborted acquisition costs. Excluding this cost, normalised operating profit increased 31.8% y-o-y and normalised operating margin declined marginally to 21.7% from 21.9%. The reported tax rate of 22.2% was lower than our 24% forecast for the year; for adjusted earnings the company used a rate of 23%, again below our forecast. The company expects a future tax rate of 22-24%.

The company increased its net cash position from £3.7m at the end of FY16 to £8.0m at the end of H117.

A dividend of 16p has been proposed for Q217, in line with our forecast. It will be paid on 12 October to shareholders as at 15 September.

Continued strong order intake

The company is benefiting from a recovery in the capital equipment market and new design wins entering into production.

Order intake reached £93.4m for H117 (+52% y-o-y, +35% constant currency), split out as £47.0m in Q117 (+55.1% y-o-y, +26.7% q-o-q) and £46.4m in Q217 (+49.2% y-o-y, -1.3% q-o-q). Around half of the growth in order intake was from existing programmes and the remainder from new programmes entering production in the last year.

Book-to-bill was 1.16x in H117, split out as 1.19x in Q117 and 1.14x in Q217.

Order backlog was £70.9m at the end of H117, up from £59.1m at the end of FY16.

Business update

The company has seen strengthening demand across all end-markets and geographies. The Technology vertical showed the strongest growth, driven by a near doubling in sales to semiconductor equipment manufacturers ($15.3m in H117, +99% y-o-y). This was followed by the Healthcare vertical with 36% growth y-o-y. Although the company has approvals from the top three companies in this market, it was the next tier of healthcare equipment companies that generated most of the growth. The Industrial sector grew 19% y-o-y which, once currency effects are removed, represented steady demand across the diverse customer base.

Exhibit 2: Revenues by end market and geography (£m)

Healthcare

H117

H116

y-o-y

Industrial

H117

H116

y-o-y

Technology

H117

H116

y-o-y

North America

14.4

10.7

34.6%

North America

13.3

11.2

18.8%

North America

16

8.9

79.8%

Europe

7.7

6.0

28.3%

Europe

17.5

14.8

18.2%

Europe

4.2

3.8

10.5%

Asia

1.7

0.8

112.5%

Asia

3.5

2.8

25.0%

Asia

1.9

1.3

46.2%

Total

23.8

17.5

36.0%

Total

34.3

28.8

19.1%

Total

22.1

14.0

57.9%

Source: XP Power

Own-design product made up 75% of revenues, up from 72% in H116 and 73% in FY16. 14 new products were introduced in H117 compared to 27 a year ago. A large number of new products were introduced in 2016 as XP added a new labelled product supplier for DC-DC converters. The sale of ultra-high efficiency “green” products grew slightly slower than the group average to make up 23% of total revenues (H116: 24%).

Manufacturing update

As previously announced, XP is planning to break ground on a second facility in Vietnam in H217 (Vietnam II). It expects the facility to cost $6.5m in total, with $1.9m to be spent in H217 and $4.6m in FY18.

As a reminder, the China facility in Kunshan is used to make power converters. The Vietnam I building manufactures less complex power converters (259 part numbers qualified to date, up from 113 in H116) as well as magnetics that are used in the manufacture of power converters. Vietnam II will be also be used to manufacture both magnetics and power converters, and is planned to be a larger facility than Vietnam I.

Exhibit 3: Manufacturing capacity

Revenue capacity* ($m)

Current utilisation

China

100

100%

Vietnam I

70

60%

Vietnam II - to be built

130

N/A

Source: XP Power. Note: *Based on current product mix.

In H117, the company manufactured 693,000 power converters (+26% y-o-y), with 60% of them produced in the Vietnam I facility. The company continues to transfer production of power converters from China to Vietnam, leaving the most complex and higher power products in China.

Outlook and changes to forecasts

The company now anticipates that FY17 results will come in materially ahead of its expectations. We have revised our forecasts as follows:

Revenues: underlying growth increased for FY17 to reflect stronger order intake. We have adjusted our US$/£ currency forecasts: FY17 from 1.27 to 1.28 and FY18 from 1.27 to 1.30. Overall our FY17 revenue forecast increases by 3.9% and FY18 by 2.5%. We note we are only forecasting modest underlying growth of 5% in FY18 – if order intake remains strong through H217 there is potential for us to upgrade this number.

Gross margins: we have tweaked down our gross margin forecasts to reflect the currency impact on higher revenues.

Net cash: despite the £2.8m exceptional charge for aborted M&A incurred in H117, we raise our net cash forecast for both years to reflect higher profitability and better working capital management.

Exhibit 4: Changes to forecasts

£m

2017e

2018e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

150.0

155.8

3.9%

20.0%

156.9

160.7

2.5%

3.2%

Gross profit

71.1

73.2

3.0%

18.1%

74.4

75.7

1.7%

3.4%

Gross margin

47.4%

47.0%

(0.4%)

(0.8%)

47.4%

47.1%

(0.3%)

0.1%

EBITDA

36.9

38.6

4.4%

16.8%

39.3

40.4

2.9%

4.8%

EBITDA margin

24.6%

24.7%

0.5%

(0.7%)

25.0%

25.1%

0.1%

0.4%

Normalised operating profit

31.8

33.5

5.1%

16.2%

33.8

34.9

3.4%

4.3%

Normalised operating profit margin

21.2%

21.5%

0.2%

(0.7%)

21.5%

21.7%

0.2%

0.2%

Reported operating profit

31.4

30.3

(3.7%)

8.1%

33.4

34.5

3.4%

14.1%

Reported operating margin

21.0%

19.4%

(1.5%)

(2.2%)

21.3%

21.5%

0.2%

2.1%

Normalised PBT

31.5

33.2

5.1%

15.9%

33.5

34.6

3.4%

4.4%

Reported PBT

31.1

30.0

(3.8%)

7.7%

33.1

34.2

3.4%

14.2%

Normalised net income

23.7

25.6

8.0%

15.9%

25.2

26.0

3.4%

1.7%

Reported net income

23.4

22.5

(3.8%)

5.7%

24.9

25.7

3.5%

14.4%

Normalised basic EPS

124.9

135.0

8.0%

16.1%

132.7

137.2

3.4%

1.7%

Normalised diluted EPS

123.6

133.5

8.0%

15.8%

131.3

135.8

3.4%

1.7%

Reported basic EPS

123.3

118.6

(3.8%)

5.9%

131.1

135.7

3.5%

14.4%

Dividend per share

75.0

75.0

0.0%

5.6%

79.0

79.0

0.0%

5.3%

Net debt/(cash)

(3.6)

(5.7)

55.5%

53.0%

(7.7)

(10.1)

30.4%

77.6%

Source: Edison Investment Research

Exhibit 5: Financial summary

£m

2012

2013

2014

2015

2016

2017e

2018e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

93.9

101.1

101.1

109.7

129.8

155.8

160.7

Cost of Sales

(49.0)

(51.5)

(51.0)

(55.1)

(67.8)

(82.6)

(85.0)

Gross Profit

44.9

49.6

50.1

54.6

62.0

73.2

75.7

EBITDA

 

 

23.3

26.0

27.6

29.7

33.0

38.6

40.4

Normalised operating profit

 

 

21.0

23.3

24.5

25.9

28.8

33.5

34.9

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

(0.4)

(0.4)

(0.4)

Exceptionals

0.0

0.0

0.0

(0.3)

(0.4)

(2.8)

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

21.0

23.3

24.5

25.6

28.0

30.3

34.5

Net Interest

(0.8)

(0.4)

(0.2)

(0.2)

(0.2)

(0.3)

(0.3)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptional & other financial

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

20.2

22.9

24.3

25.7

28.6

33.2

34.6

Profit Before Tax (reported)

 

 

20.2

22.9

24.3

25.4

27.8

30.0

34.2

Reported tax

(4.5)

(4.5)

(4.8)

(5.5)

(6.3)

(7.2)

(8.2)

Profit After Tax (norm)

15.7

18.4

19.5

20.2

22.3

25.9

26.3

Profit After Tax (reported)

15.7

18.4

19.5

19.9

21.5

22.8

26.0

Minority interests

(0.2)

(0.2)

(0.1)

(0.2)

(0.2)

(0.3)

(0.3)

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

15.5

18.2

19.4

20.0

22.1

25.6

26.0

Net income (reported)

15.5

18.2

19.4

19.7

21.3

22.5

25.7

Basic average number of shares outstanding (m)

19

19

19

19

19

19

19

EPS - basic normalised (p)

 

 

81.67

95.84

102.12

105.28

116.22

134.95

137.24

EPS - diluted normalised (p)

 

 

81.35

95.05

101.07

104.32

115.33

133.55

135.81

EPS - basic reported (p)

 

 

81.67

95.84

102.12

103.70

112.02

118.62

135.66

Dividend (p)

50

55

61

66

71

75

79

Revenue growth (%)

(9.4)

7.7

0.0

8.5

18.3

20.0

3.2

Gross Margin (%)

47.8

49.1

49.6

49.8

47.8

47.0

47.1

EBITDA Margin (%)

24.8

25.7

27.3

27.0

25.4

24.7

25.1

Normalised Operating Margin

22.4

23.0

24.2

23.6

22.2

21.5

21.7

BALANCE SHEET

Fixed Assets

 

 

52.8

53.3

56.1

65.4

73.2

76.9

80.7

Intangible Assets

38.1

39.1

40.5

48.2

53.0

54.2

55.2

Tangible Assets

13.2

12.7

14.4

16.1

19.1

21.6

24.4

Investments & other

1.5

1.5

1.2

1.1

1.1

1.1

1.1

Current Assets

 

 

39.3

42.2

47.0

53.5

65.7

72.1

78.4

Stocks

19.8

20.4

25.2

28.7

32.2

38.5

39.6

Debtors

14.2

15.4

16.0

17.5

21.5

24.8

25.5

Cash & cash equivalents

4.1

5.0

3.8

4.9

9.2

6.1

10.5

Other

1.2

1.4

2.0

2.4

2.8

2.8

2.8

Current Liabilities

 

 

(20.2)

(22.4)

(18.6)

(19.8)

(25.7)

(26.6)

(25.5)

Creditors

(11.1)

(12.7)

(14.4)

(14.6)

(16.0)

(22.5)

(21.4)

Tax and social security

(1.6)

(1.1)

(1.7)

(1.2)

(3.3)

(3.3)

(3.3)

Short term borrowings

(7.3)

(8.5)

(2.5)

(4.0)

(5.5)

(0.4)

(0.4)

Other

(0.2)

(0.1)

0.0

0.0

(0.9)

(0.4)

(0.4)

Long Term Liabilities

 

 

(10.6)

(3.7)

(4.2)

(10.0)

(6.2)

(6.2)

(6.2)

Long term borrowings

(7.4)

0.0

0.0

(4.6)

0.0

0.0

0.0

Other long term liabilities

(3.2)

(3.7)

(4.2)

(5.4)

(6.2)

(6.2)

(6.2)

Net Assets

 

 

61.3

69.4

80.3

89.1

107.0

116.1

127.3

Minority interests

(0.2)

(0.2)

(0.1)

(0.8)

(0.9)

(1.0)

(1.1)

Shareholders' equity

 

 

61.1

69.2

80.2

88.3

106.1

115.1

126.2

CASH FLOW

Op Cash Flow before WC and tax

23.3

26.0

27.6

29.7

33.0

38.6

40.4

Working capital

4.2

(0.3)

(4.1)

(4.6)

(6.2)

(3.0)

(3.0)

Exceptional & other

0.4

(0.5)

1.9

0.6

5.2

(2.8)

0.0

Tax

(4.3)

(5.0)

(3.6)

(4.7)

(4.1)

(7.2)

(8.2)

Net operating cash flow

 

 

23.6

20.2

21.8

21.0

27.9

25.5

29.2

Capex

(4.7)

(3.2)

(5.8)

(5.4)

(6.8)

(9.2)

(9.7)

Acquisitions/disposals

(1.6)

0.1

0.1

(8.3)

0.1

(0.5)

0.0

Net interest

(0.5)

(0.3)

(0.1)

(0.1)

(0.2)

(0.3)

(0.3)

Equity financing

(0.5)

0.1

(0.2)

0.0

0.2

0.5

0.0

Dividends

(9.1)

(10.1)

(11.0)

(12.2)

(13.1)

(14.1)

(14.8)

Other

0.5

0.2

0.1

0.2

0.0

0.0

0.0

Net Cash Flow

7.7

7.0

4.9

(4.8)

8.1

2.0

4.4

Opening net debt/(cash)

 

 

18.6

10.6

3.5

(1.3)

3.7

(3.7)

(5.7)

FX

0.3

0.1

(0.1)

(0.2)

(0.5)

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.1

(0.2)

0.0

0.0

Closing net debt/(cash)

 

 

10.6

3.5

(1.3)

3.7

(3.7)

(5.7)

(10.1)

Source: XP Power, Edison Investment Research

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by XP Power and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by XP Power and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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