Demand acceleration through Q419

XP Power 13 January 2020 Update
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XP Power

Demand acceleration through Q419

FY19 trading update

Tech hardware & equipment

13 January 2020

Price

3,210p

Market cap

£613m

$1.31:£1

Net debt (£m) at end FY19

41.5

Shares in issue

19.1m

Free float

90%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.9

29.4

44

Rel (local)

4.7

21.2

30.2

52-week high/low

3,230p

1,965p

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

FY19 results

March 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

XP Power is a research client of Edison Investment Research Limited

While previously reported issues with an ERP upgrade limited the amount of product XP could ship in Q419, revenues for FY19 came in ahead of our forecast and XP closed the year with a strong order book after an acceleration in demand across all markets in December. We have revised our forecasts to reflect both factors, with normalised EPS upgrades of 4.3% in FY19 and 1.5% in FY20.

Year end

Revenue (£m)

PBT*
(£m)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

166.8

36.1

147.0

78.0

21.8

2.4

12/18

195.1

41.2

172.8

85.0

18.6

2.6

12/19e

200.4

34.3

143.1

91.0

22.4

2.8

12/20e

211.0

40.5

169.3

95.0

19.0

3.0

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

ERP issue resolved; Q4 orders +30% y-o-y

XP has reported Q419 revenue of £47.7m (-3% y-o-y, -5% constant currency), resulting in FY19 revenue of £200.4m (+3% y-o-y, -1% cc, -4% like-for-like), well head of our £194.8m forecast. Q4 bookings of £58.6m were 30% higher year-on-year and 29% higher on a constant currency basis. Combined with the previously announced delay in shipments, this resulted in a book-to-bill of 1.23x for Q4. The company noted that its ERP system is now working well and shipments have been at normal or higher rates since mid-November. Year-end net debt stood at £41.5m, well below our £54.2m forecast. The company highlighted that US-denominated debt benefited from stronger sterling while working capital requirements were lower than expected. During Q4, XP increased its debt facility from $105m to $120m and added a $60m accordion facility. XP expects to announce a Q4 dividend of at least 36p, bringing the full-year dividend to at least 91p (our forecast was 88p).

Forecasts upgraded to reflect bookings intake

Management pointed to an acceleration in bookings during December (XP had previously reported that bookings in the first two months of Q4 were 20% higher year-on-year) and noted that strength was across all sectors. We have revised our forecasts to reflect the stronger revenue performance and higher than expected bookings intake in Q4 as well as the higher dividend and better cash position. We have also reflected a slightly higher US$/£ rate in FY20 (1.31 vs 1.30). This results in a normalised EPS upgrade of 4.3% in FY19 and 1.5% in FY20.

Valuation: Well positioned going into 2020

The stock is up 43% over the last year and on an FY20e P/E basis, it trades at a small discount versus UK electronics peers. It continues to trade at a larger discount to international power converter peers. XP has taken steps to mitigate the impact of trade tariffs between China and the US as well as preparing for Brexit; evidence that this is helping margins should support upside to the stock. A sustained return to order growth from the semiconductor equipment sector would be a further trigger for upside.

Changes to forecasts

Exhibit 1: Changes to estimates

£m

FY19e

FY20e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

194.8

200.4

2.9%

2.7%

209.0

211.0

1.0%

5.3%

Gross profit

86.5

89.0

2.9%

(3.5%)

94.9

95.8

1.0%

7.6%

Gross margin

44.4%

44.4%

0.0%

(2.9%)

45.4%

45.4%

0.0%

1.0%

EBITDA

45.1

46.5

3.1%

(5.5%)

52.5

53.1

1.1%

14.2%

EBITDA margin

23.2%

23.2%

0.0%

(2.0%)

25.1%

25.2%

0.0%

1.9%

Normalised operating profit

36.1

37.5

3.9%

(12.6%)

42.9

43.5

1.4%

16.0%

Normalised operating profit margin

18.5%

18.7%

0.2%

(3.3%)

20.5%

20.6%

0.1%

1.9%

Reported operating profit

29.8

31.2

4.7%

(20.6%)

39.2

39.8

1.5%

27.5%

Reported operating margin

15.3%

15.6%

0.3%

(4.6%)

18.7%

18.8%

0.1%

3.3%

Normalised PBT

32.9

34.3

4.2%

(16.8%)

39.9

40.5

1.5%

18.0%

Reported PBT

26.6

28.0

5.2%

(25.6%)

36.2

36.8

1.7%

31.4%

Normalised net income

26.7

27.9

4.3%

(17.4%)

32.5

33.0

1.5%

18.3%

Reported net income

21.6

22.7

5.3%

(24.8%)

29.4

29.9

1.7%

31.7%

Normalised basic EPS (p)

139.9

145.9

4.3%

(17.2%)

170.0

172.6

1.5%

18.3%

Normalised diluted EPS (p)

137.3

143.1

4.3%

(17.2%)

166.8

169.3

1.5%

18.3%

Reported basic EPS (p)

112.9

118.9

5.3%

(24.7%)

154.1

156.6

1.7%

31.7%

Dividend per share (p)

88.0

91.0

3.4%

7.1%

92.0

95.0

3.3%

4.4%

Net debt/(cash)

54.2

41.5

(23.4%)

(20.1%)

45.7

38.7

(15.5%)

(6.9%)

Source: Edison Investment Research

Exhibit 2: Financial summary

£m

2012

2013

2014

2015

2016

2017

2018

2019e

2020e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

93.9

101.1

101.1

109.7

129.8

166.8

195.1

200.4

211.0

Cost of Sales

(49.0)

(51.5)

(51.0)

(55.1)

(67.8)

(89.2)

(102.8)

(111.3)

(115.2)

Gross Profit

44.9

49.6

50.1

54.6

62.0

77.6

92.3

89.0

95.8

EBITDA

 

 

23.3

26.0

27.6

29.7

33.0

41.7

49.2

46.5

53.1

Normalised operating profit

 

 

21.0

23.3

24.5

25.9

28.8

36.4

42.9

37.5

43.5

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

(0.4)

(0.6)

(2.8)

(3.2)

(3.2)

Exceptionals

0.0

0.0

0.0

(0.3)

(0.4)

(3.3)

(0.8)

(2.6)

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

0.0

(0.5)

(0.5)

Reported operating profit

21.0

23.3

24.5

25.6

28.0

32.5

39.3

31.2

39.8

Net Interest

(0.8)

(0.4)

(0.2)

(0.2)

(0.2)

(0.3)

(1.7)

(3.2)

(3.0)

Joint ventures & associates

0.0

0.0

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

0.0

0.0

Profit Before Tax (norm)

 

 

20.2

22.9

24.3

25.7

28.6

36.1

41.2

34.3

40.5

Profit Before Tax (reported)

 

 

20.2

22.9

24.3

25.4

27.8

32.2

37.6

28.0

36.8

Reported tax

(4.5)

(4.5)

(4.8)

(5.5)

(6.3)

(3.6)

(7.2)

(5.0)

(6.6)

Profit After Tax (norm)

15.7

18.4

19.5

20.2

22.3

28.8

33.9

28.1

33.2

Profit After Tax (reported)

15.7

18.4

19.5

19.9

21.5

28.6

30.4

23.0

30.2

Minority interests

(0.2)

(0.2)

(0.1)

(0.2)

(0.2)

(0.3)

(0.2)

(0.3)

(0.3)

Discontinued operations

0.0

0.0

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

28.5

33.7

27.9

33.0

Net income (reported)

15.5

18.2

19.4

19.7

21.3

28.3

30.2

22.7

29.9

Basic ave. number of shares outstanding (m)

19

19

19

19

19

19

19

19

19

EPS - basic normalised (p)

 

 

81.7

95.8

102.1

105.3

116.2

149.4

176.1

145.9

172.6

EPS - diluted normalised (p)

 

 

81.3

95.1

101.1

104.3

115.3

147.0

172.8

143.1

169.3

EPS - basic reported (p)

 

 

81.7

95.8

102.1

103.7

112.0

148.3

157.8

118.9

156.6

Dividend (p)

50

55

61

66

71

78

85

91

95

Revenue growth (%)

(9.4)

7.7

0.0

8.5

18.3

28.5

17.0

2.7

5.3

Gross Margin (%)

47.8

49.1

49.6

49.8

47.8

46.5

47.3

44.4

45.4

EBITDA Margin (%)

24.8

25.7

27.3

27.0

25.4

25.0

25.2

23.2

25.2

Normalised Operating Margin

22.4

23.0

24.2

23.6

22.2

21.8

22.0

18.7

20.6

BALANCE SHEET

Fixed Assets

 

 

52.8

53.3

56.1

65.4

73.2

88.1

129.2

141.7

144.9

Intangible Assets

38.1

39.1

40.5

48.2

53.0

63.9

97.7

103.3

105.1

Tangible Assets

13.2

12.7

14.4

16.1

19.1

22.5

30.7

37.6

39.0

Investments & other

1.5

1.5

1.2

1.1

1.1

1.7

0.8

0.8

0.8

Current Assets

 

 

39.3

42.2

47.0

53.5

65.7

83.5

105.1

108.0

111.1

Stocks

19.8

20.4

25.2

28.7

32.2

37.8

56.5

53.4

55.2

Debtors

14.2

15.4

16.0

17.5

21.5

23.8

33.0

31.3

34.7

Cash & cash equivalents

4.1

5.0

3.8

4.9

9.2

15.0

11.5

19.3

17.1

Other

1.2

1.4

2.0

2.4

2.8

6.9

4.1

4.1

4.1

Current Liabilities

 

 

(20.2)

(22.4)

(18.6)

(19.8)

(25.8)

(25.1)

(26.8)

(35.8)

(34.4)

Creditors

(11.1)

(12.7)

(14.4)

(14.6)

(16.1)

(21.4)

(22.4)

(29.5)

(28.1)

Tax and social security

(1.6)

(1.1)

(1.7)

(1.2)

(3.3)

(3.5)

(4.2)

(4.2)

(4.2)

Short term borrowings

(7.3)

(8.5)

(2.5)

(4.0)

(5.5)

0.0

0.0

(1.9)

(1.9)

Other

(0.2)

(0.1)

0.0

0.0

(0.9)

(0.2)

(0.2)

(0.2)

(0.2)

Long Term Liabilities

 

 

(10.6)

(3.7)

(4.2)

(10.0)

(6.2)

(29.6)

(70.1)

(65.5)

(60.5)

Long term borrowings

(7.4)

0.0

0.0

(4.6)

0.0

(24.0)

(63.5)

(58.9)

(53.9)

Other long term liabilities

(3.2)

(3.7)

(4.2)

(5.4)

(6.2)

(5.6)

(6.6)

(6.6)

(6.6)

Net Assets

 

 

61.3

69.4

80.3

89.1

106.9

116.9

137.4

148.4

161.1

Minority interests

(0.2)

(0.2)

(0.1)

(0.8)

(0.8)

(0.9)

(1.0)

(1.1)

(1.1)

Shareholders' equity

 

 

61.1

69.2

80.2

88.3

106.1

116.0

136.4

147.3

160.0

CASH FLOW

Op Cash Flow before WC and tax

23.3

26.0

27.6

29.7

33.0

41.7

49.2

46.5

53.1

Working capital

4.2

(0.3)

(4.1)

(4.6)

(6.1)

0.4

(21.6)

12.0

(6.6)

Exceptional & other

0.4

(0.5)

1.9

0.6

5.1

(6.3)

3.2

(2.6)

0.0

Tax

(4.3)

(5.0)

(3.6)

(4.7)

(4.1)

(6.1)

(4.1)

(5.0)

(6.6)

Net operating cash flow

 

 

23.6

20.2

21.8

21.0

27.9

29.7

26.7

50.8

39.8

Capex

(4.7)

(3.2)

(5.8)

(5.4)

(6.8)

(10.1)

(15.0)

(18.4)

(16.0)

Acquisitions/disposals

(1.6)

0.1

0.1

(8.3)

0.1

(18.3)

(35.4)

0.0

0.0

Net interest

(0.5)

(0.3)

(0.1)

(0.1)

(0.2)

(0.2)

(1.5)

(3.2)

(3.0)

Equity financing

(0.5)

0.1

(0.2)

0.0

0.2

(0.2)

0.6

0.0

0.0

Dividends

(9.1)

(10.1)

(11.0)

(12.2)

(13.1)

(14.2)

(15.6)

(16.8)

(18.0)

Other

0.5

0.2

0.1

0.2

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

7.7

7.0

4.9

(4.8)

8.1

(13.3)

(40.2)

12.4

2.9

Opening net debt/(cash)

 

 

18.6

10.6

3.5

(1.3)

3.7

(3.7)

9.0

52.0

41.5

FX

0.3

0.1

(0.1)

(0.2)

(0.5)

0.6

(2.7)

2.9

0.0

Other non-cash movements

0.0

0.0

0.0

0.1

(0.2)

0.0

(0.1)

(4.8)

0.0

Closing net debt/(cash)

 

 

10.6

3.5

(1.3)

3.7

(3.7)

9.0

52.0

41.5

38.7

Source: XP Power, Edison Investment Research

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New Zealand

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United Kingdom

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United States

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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