Positive order momentum continues in Q2

XP Power 4 June 2020 Update
Download PDF

XP Power

Positive order momentum continues in Q2

Trading update

Tech hardware & equipment

4 June 2020

Price

3,500p

Market cap

£669m

$1.24:£1

Net debt (£m) at end Q120

45.3

Shares in issue

19.1m

Free float

90%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.0

7.7

51.5

Rel (local)

3.0

14.3

68.7

52-week high/low

3,820p

2,010p

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

H120 results

30 July 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

XP Power is a research client of Edison Investment Research Limited

In its trading update for the five months to the end of May, XP Power confirmed that it continues to see strong demand from semiconductor and healthcare customers. With demand from the healthcare sector likely to moderate in H2, and continued uncertainty in other end-markets, we maintain our revenue forecasts for FY20/21. We reduce FY20e EPS by 2.7% to reflect short-term increases in air freight costs.

Year end

Revenue (£m)

PBT*
(£m)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

195.1

41.2

172.8

85.0

20.3

2.4

12/19

199.9

33.2

145.5

55.0

24.1

1.6

12/20e

209.2

36.1

154.3

77.0

22.7

2.2

12/21e

218.2

42.8

179.1

99.0

19.5

2.8

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

Order intake remains elevated

XP confirmed that order intake in April and May continued at the high levels seen in Q120. Orders received for the five months to the end of May (5M20) of £128.0m were 52% higher y-o-y (£73.1m in Q120 (+34%), £54.9m in April/May (+84%)). Revenues of £86.3m for 5M20 were 7% higher y-o-y (£49.1m in Q120 (+5%), £37.2m in April/May (+10%)). Book-to-bill for 5M20 was 1.48x. XP noted that demand from semiconductor production equipment and healthcare customers was high. In healthcare, products supplied include ventilators, CPAP devices, patient monitors, hospital beds, drug delivery systems, suction pumps, and lung ultrasound and X-ray machines. At the same time, some orders from industrial customers have been pushed out due to lower end-customer demand or production constraints. All of XP’s manufacturing and logistics facilities are operational, with the Asian supply chain back at pre-COVID-19 levels, although air freight costs from Asia are higher than normal. Net debt at the end of May was £38.0m, down from £45.3m at the end of Q120.

Reflecting higher short-term freight costs

The company expects healthcare demand to moderate in H220. Otherwise, there is little clarity on how demand is likely to develop within XP’s other end-markets. We continue to forecast a step down in orders in H2, with a steady revenue run rate through the rest of the year supported by the current elevated backlog. We have reduced our FY20 gross profit forecast to reflect the higher freight costs, resulting in a 2.7% cut to our FY20e normalised EPS forecast; FY21 forecasts are unchanged.

Valuation: Backlog provides good support

The share is up 64% from its low in March, yet on a P/E basis continues to trade at a material discount to global power converter companies and a smaller discount to UK electronics companies, despite generating EBIT margins at the top end of the peer group. While there remains uncertainty over demand during this period of disruption, we highlight XP’s strong backlog and access to funding.

Changes to estimates

Exhibit 1: Changes to forecasts

£m

FY20e

FY21e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

209.2

209.2

0.0%

4.7%

218.2

218.2

0.0%

4.3%

Gross profit

94.3

93.3

(1.0%)

3.6%

100.1

100.1

0.0%

7.3%

Gross margin

45.1%

44.6%

(0.5%)

(0.5%)

45.9%

45.9%

0.0%

1.3%

EBITDA

49.5

48.5

(2.1%)

6.9%

55.3

55.3

0.0%

13.9%

EBITDA margin

23.7%

23.2%

(0.5%)

0.5%

25.3%

25.3%

0.0%

2.1%

Normalised operating profit

39.6

38.6

(2.6%)

7.6%

45.1

45.1

0.0%

16.7%

Normalised operating margin

18.9%

18.5%

(0.5%)

0.5%

20.7%

20.7%

0.0%

2.2%

Reported operating profit

32.4

31.4

(3.1%)

17.7%

41.4

41.4

0.0%

31.7%

Reported operating margin

15.5%

15.0%

(0.5%)

1.7%

19.0%

19.0%

0.0%

3.9%

Normalised PBT

37.1

36.1

(2.7%)

8.8%

42.8

42.8

0.0%

18.4%

Reported PBT

29.9

28.9

(3.4%)

20.5%

39.1

39.1

0.0%

35.1%

Normalised net income

30.9

30.0

(2.7%)

5.7%

34.9

34.9

0.0%

16.1%

Reported net income

24.3

23.5

(3.4%)

14.5%

31.8

31.8

0.0%

35.5%

Normalised basic EPS (p)

161.6

157.2

(2.7%)

6.0%

182.5

182.5

0.0%

16.1%

Normalised diluted EPS (p)

158.5

154.3

(2.7%)

6.0%

179.1

179.1

0.0%

16.1%

Reported basic EPS (p)

127.3

122.9

(3.4%)

14.9%

166.6

166.6

0.0%

35.5%

Dividend per share (p)

77.0

77.0

0.0%

40.0%

99.0

99.0

0.0%

28.6%

Net debt/(cash)

34.6

35.6

3.1%

(13.7%)

27.7

28.5

3.0%

(20.0%)

Source: Edison Investment Research

Exhibit 2: Financial summary

£m

2015

2016

2017

2018

2019

2020e

2021e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

109.7

129.8

166.8

195.1

199.9

209.2

218.2

Cost of Sales

(55.1)

(67.8)

(89.2)

(102.8)

(109.8)

(115.9)

(118.1)

Gross Profit

54.6

62.0

77.6

92.3

90.1

93.3

100.1

EBITDA

 

 

29.7

33.0

41.7

49.2

45.4

48.5

55.3

Normalised operating profit

 

 

25.9

28.8

36.4

42.9

35.9

38.6

45.1

Amortisation of acquired intangibles

0.0

(0.4)

(0.6)

(2.8)

(3.2)

(3.2)

(3.2)

Exceptionals

(0.3)

(0.4)

(3.3)

(0.8)

(6.0)

(3.5)

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

(0.5)

(0.5)

Reported operating profit

25.6

28.0

32.5

39.3

26.7

31.4

41.4

Net Interest

(0.2)

(0.2)

(0.3)

(1.7)

(2.7)

(2.5)

(2.3)

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)

 

 

25.7

28.6

36.1

41.2

33.2

36.1

42.8

Profit Before Tax (reported)

 

 

25.4

27.8

32.2

37.6

24.0

28.9

39.1

Reported tax

(5.5)

(6.3)

(3.6)

(7.2)

(3.2)

(5.2)

(7.0)

Profit After Tax (norm)

20.2

22.3

28.8

33.9

28.7

30.3

35.1

Profit After Tax (reported)

19.9

21.5

28.6

30.4

20.8

23.7

32.1

Minority interests

(0.2)

(0.2)

(0.3)

(0.2)

(0.3)

(0.3)

(0.3)

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

20.0

22.1

28.5

33.7

28.4

30.0

34.9

Net income (reported)

19.7

21.3

28.3

30.2

20.5

23.5

31.8

Basic average number of shares outstanding (m)

19

19

19

19

19

19

19

EPS - basic normalised (p)

 

 

105.3

116.2

149.4

176.1

148.3

157.2

182.5

EPS - diluted normalised (p)

 

 

104.3

115.3

147.0

172.8

145.5

154.3

179.1

EPS - basic reported (p)

 

 

103.7

112.0

148.3

157.8

107.0

122.9

166.6

Dividend (p)

66

71

78

85

55

77

99

Revenue growth (%)

8.5

18.3

28.5

17.0

2.5

4.7

4.3

Gross Margin (%)

49.8

47.8

46.5

47.3

45.1

44.6

45.9

EBITDA Margin (%)

27.0

25.4

25.0

25.2

22.7

23.2

25.3

Normalised Operating Margin

23.6

22.2

21.8

22.0

18.0

18.5

20.7

BALANCE SHEET

Fixed Assets

 

 

65.4

73.2

88.1

129.2

137.4

142.8

145.9

Intangible Assets

48.2

53.0

63.9

97.7

99.6

104.7

106.1

Tangible Assets

16.1

19.1

22.5

30.7

35.9

36.2

37.9

Investments & other

1.1

1.1

1.7

0.8

1.9

1.9

1.9

Current Assets

 

 

53.5

65.7

83.5

105.1

96.0

101.0

105.6

Stocks

28.7

32.2

37.8

56.5

44.1

46.5

47.4

Debtors

17.5

21.5

23.8

33.0

34.8

36.7

38.3

Cash & cash equivalents

4.9

9.2

15.0

11.5

11.2

11.9

14.0

Other

2.4

2.8

6.9

4.1

5.9

5.9

5.9

Current Liabilities

 

 

(19.8)

(25.8)

(25.1)

(26.8)

(30.4)

(30.7)

(31.1)

Creditors

(14.6)

(16.1)

(21.4)

(22.4)

(25.2)

(25.5)

(25.9)

Tax and social security

(1.2)

(3.3)

(3.5)

(4.2)

(3.1)

(3.1)

(3.1)

Short term borrowings

(4.0)

(5.5)

0.0

0.0

(1.6)

(1.6)

(1.6)

Other

0.0

(0.9)

(0.2)

(0.2)

(0.5)

(0.5)

(0.5)

Long Term Liabilities

 

 

(10.0)

(6.2)

(29.6)

(70.1)

(64.1)

(57.6)

(51.1)

Long term borrowings

(4.6)

0.0

(24.0)

(63.5)

(57.3)

(50.8)

(44.3)

Other long term liabilities

(5.4)

(6.2)

(5.6)

(6.6)

(6.8)

(6.8)

(6.8)

Net Assets

 

 

89.1

106.9

116.9

137.4

138.9

155.4

169.2

Minority interests

(0.8)

(0.8)

(0.9)

(1.0)

(0.7)

(1.1)

(1.1)

Shareholders' equity

 

 

88.3

106.1

116.0

136.4

138.2

154.3

168.1

CASH FLOW

Op Cash Flow before WC and tax

29.7

33.0

41.7

49.2

45.4

48.5

55.3

Working capital

(4.6)

(6.1)

0.4

(21.6)

10.6

(4.0)

(2.1)

Exceptional & other

0.6

5.1

(6.3)

3.2

(5.3)

(3.5)

0.0

Tax

(4.7)

(4.1)

(6.1)

(4.1)

(4.5)

(5.2)

(7.0)

Net operating cash flow

 

 

21.0

27.9

29.7

26.7

46.2

35.8

46.1

Capex

(5.4)

(6.8)

(10.1)

(15.0)

(16.3)

(18.5)

(16.5)

Acquisitions/disposals

(8.3)

0.1

(18.3)

(35.4)

0.0

0.0

0.0

Net interest

(0.1)

(0.2)

(0.2)

(1.5)

(2.7)

(2.5)

(2.3)

Equity financing

0.0

0.2

(0.2)

0.6

0.5

0.0

0.0

Dividends

(12.2)

(13.1)

(14.2)

(15.6)

(17.2)

(7.7)

(18.7)

Other

0.2

0.0

0.0

0.0

(1.5)

(1.5)

(1.5)

Net Cash Flow

(4.8)

8.1

(13.3)

(40.2)

9.0

5.7

7.1

Opening net debt/(cash)

 

 

(1.3)

3.7

(3.7)

9.0

52.0

41.3

35.6

FX

(0.2)

(0.5)

0.6

(2.7)

1.7

0.0

0.0

Other non-cash movements

0.1

(0.2)

0.0

(0.1)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

3.7

(3.7)

9.0

52.0

41.3

35.6

28.5

Source: XP Power, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by XP Power and prepared and issued by Edison, in consideration of a fee payable by XP Power. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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

General disclaimer and copyright

This report has been commissioned by XP Power and prepared and issued by Edison, in consideration of a fee payable by XP Power. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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

Share this with friends and colleagues

You may be interested in