XP Power |
Positive Q1 trading update |
Q1 trading update |
Tech hardware & equipment |
11 April 2016 |
Share price performance
Business description
Next events
Analysts
XP Power is a research client of Edison Investment Research Limited |
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XP confirmed that Q116 revenues and orders grew year-on-year on both a reported and constant currency basis, remaining at the strong level achieved in the previous quarter. Trading continues to support management’s expectations for revenue growth in 2016 and, accordingly, we leave our estimates unchanged.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
101.1 |
24.3 |
101.1 |
61.0 |
15.6 |
3.9 |
12/15 |
109.7 |
25.7 |
104.3 |
66.0 |
15.1 |
4.2 |
12/16e |
122.2 |
27.0 |
105.3 |
69.0 |
15.0 |
4.4 |
12/17e |
129.6 |
29.8 |
116.6 |
73.0 |
13.5 |
4.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q116 trading a continuation of Q415
XP saw encouraging trading in Q116: revenues grew 10% y-o-y to £28.2m (+6% constant currency) and 1% from the previous quarter. Order intake of £30.3m was marginally higher than the Q415 intake and 9% higher than a year ago (+4% constant currency). Net debt of £3.7m at the end of Q116 was flat compared to the end of FY15. The Q1 dividend of 14p was in line with our expectations and 8% higher than a year ago. It will be paid on 8 July to shareholders as at 17 June.
Outlook remains positive; no change to forecasts
The strong order inflow in Q116 supports management’s expectations for revenue growth in 2016. The integration of the recent EMCO acquisition continues on track – the business was shifted onto XP’s ERP system on 1 January and training of the salesforce is now complete, paving the way for cross-selling opportunities. We make no change to forecasts at this point – we note that there is upside potential to revenues from the continued weakness of sterling versus the dollar, although this would have a more limited effect at the net income level.
Valuation: Recent investment supports growth
While the economic outlook is mixed, with slower growth forecast in the US and China, we believe that XP should benefit from its recent investment in engineering and sales resource, as well as acquisitions in the US and South Korea. Strong forecast cash generation should enable the company to invest in further growth, either through internal product development or through the bolt-on acquisitions it continues to evaluate. XP now trades on a P/E of 15.0x FY16e and 13.5x FY17e normalised EPS, with a forecast dividend yield of 4.4% in FY16 and 4.6% in FY17. Competitor power converter companies are trading at around 19x FY16e EPS on EBITDA margins of c 16% versus XP’s 25.6% forecast EBITDA margin. The UK distributors are trading on 12-20x FY16e EPS, on c 9% EBITDA margins. Based on XP’s superior margins, the company is undervalued versus peers, and is further supported by its dividend yield.
Exhibit 1: Financial summary
£m |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||
Revenue |
|
|
93.9 |
101.1 |
101.1 |
109.7 |
122.2 |
129.6 |
Cost of Sales |
(49.0) |
(51.5) |
(51.0) |
(55.1) |
(61.1) |
(64.6) |
||
Gross Profit |
44.9 |
49.6 |
50.1 |
54.6 |
61.1 |
65.0 |
||
EBITDA |
|
|
23.3 |
26.0 |
27.6 |
29.7 |
31.2 |
34.2 |
Normalised operating profit |
|
|
21.0 |
23.3 |
24.5 |
25.9 |
27.2 |
30.1 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
(0.3) |
0.0 |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
21.0 |
23.3 |
24.5 |
25.6 |
27.2 |
30.1 |
||
Net Interest |
(0.8) |
(0.4) |
(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 |
||
Exceptional & other financial |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
20.2 |
22.9 |
24.3 |
25.7 |
27.0 |
29.8 |
Profit Before Tax (reported) |
|
|
20.2 |
22.9 |
24.3 |
25.4 |
27.0 |
29.8 |
Reported tax |
(4.5) |
(4.5) |
(4.8) |
(5.5) |
(6.5) |
(7.2) |
||
Profit After Tax (norm) |
15.7 |
18.4 |
19.5 |
20.2 |
20.5 |
22.7 |
||
Profit After Tax (reported) |
15.7 |
18.4 |
19.5 |
19.9 |
20.5 |
22.7 |
||
Minority interests |
(0.2) |
(0.2) |
(0.1) |
(0.2) |
(0.3) |
(0.3) |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
15.5 |
18.2 |
19.4 |
20.0 |
20.2 |
22.4 |
||
Net income (reported) |
15.5 |
18.2 |
19.4 |
19.7 |
20.2 |
22.4 |
||
Basic average number of shares outstanding (m) |
19 |
19 |
19 |
19 |
19 |
19 |
||
EPS - basic normalised (p) |
|
|
81.67 |
95.84 |
102.12 |
105.28 |
106.45 |
117.78 |
EPS - diluted normalised (p) |
|
|
81.35 |
95.05 |
101.07 |
104.32 |
105.34 |
116.56 |
EPS - basic reported (p) |
|
|
81.67 |
95.84 |
102.12 |
103.70 |
106.45 |
117.78 |
Dividend (p) |
50 |
55 |
61 |
66 |
69 |
73 |
||
Revenue growth (%) |
(9.4) |
7.7 |
0.0 |
8.5 |
11.4 |
6.0 |
||
Gross Margin (%) |
47.8 |
49.1 |
49.6 |
49.8 |
50.0 |
50.2 |
||
EBITDA Margin (%) |
24.8 |
25.7 |
27.3 |
27.0 |
25.6 |
26.4 |
||
Normalised Operating Margin |
22.4 |
23.0 |
24.2 |
23.6 |
22.3 |
23.2 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
52.8 |
53.3 |
56.1 |
65.4 |
66.3 |
67.1 |
Intangible Assets |
38.1 |
39.1 |
40.5 |
48.2 |
49.0 |
49.7 |
||
Tangible Assets |
13.2 |
12.7 |
14.4 |
16.1 |
16.2 |
16.3 |
||
Investments & other |
1.5 |
1.5 |
1.2 |
1.1 |
1.1 |
1.1 |
||
Current Assets |
|
|
39.3 |
42.2 |
47.0 |
53.5 |
58.2 |
62.8 |
Stocks |
19.8 |
20.4 |
25.2 |
28.7 |
30.1 |
31.8 |
||
Debtors |
14.2 |
15.4 |
16.0 |
17.5 |
18.8 |
19.9 |
||
Cash & cash equivalents |
4.1 |
5.0 |
3.8 |
4.9 |
6.9 |
8.7 |
||
Other |
1.2 |
1.4 |
2.0 |
2.4 |
2.4 |
2.4 |
||
Current Liabilities |
|
|
(20.2) |
(22.4) |
(18.6) |
(19.8) |
(22.6) |
(19.0) |
Creditors |
(11.1) |
(12.7) |
(14.4) |
(14.6) |
(16.3) |
(17.2) |
||
Tax and social security |
(1.6) |
(1.1) |
(1.7) |
(1.2) |
(1.2) |
(1.2) |
||
Short term borrowings |
(7.3) |
(8.5) |
(2.5) |
(4.0) |
(5.1) |
(0.6) |
||
Other |
(0.2) |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(10.6) |
(3.7) |
(4.2) |
(10.0) |
(5.4) |
(5.4) |
Long term borrowings |
(7.4) |
0.0 |
0.0 |
(4.6) |
0.0 |
0.0 |
||
Other long term liabilities |
(3.2) |
(3.7) |
(4.2) |
(5.4) |
(5.4) |
(5.4) |
||
Net Assets |
|
|
61.3 |
69.4 |
80.3 |
89.1 |
96.4 |
105.4 |
Minority interests |
(0.2) |
(0.2) |
(0.1) |
(0.8) |
(0.9) |
(1.0) |
||
Shareholders' equity |
|
|
61.1 |
69.2 |
80.2 |
88.3 |
95.5 |
104.4 |
CASH FLOW |
||||||||
Op Cash Flow before WC and tax |
23.3 |
26.0 |
27.6 |
29.7 |
31.2 |
34.2 |
||
Working capital |
4.2 |
(0.3) |
(4.1) |
(4.6) |
(1.0) |
(1.9) |
||
Exceptional & other |
0.4 |
(0.5) |
1.9 |
0.6 |
0.0 |
0.0 |
||
Tax |
(4.3) |
(5.0) |
(3.6) |
(4.7) |
(6.5) |
(7.2) |
||
Net operating cash flow |
|
|
23.6 |
20.2 |
21.8 |
21.0 |
23.7 |
25.2 |
Capex |
(4.7) |
(3.2) |
(5.8) |
(5.4) |
(4.9) |
(4.9) |
||
Acquisitions/disposals |
(1.6) |
0.1 |
0.1 |
(8.3) |
0.0 |
0.0 |
||
Net interest |
(0.5) |
(0.3) |
(0.1) |
(0.1) |
(0.3) |
(0.3) |
||
Equity financing |
(0.5) |
0.1 |
(0.2) |
0.0 |
0.0 |
0.0 |
||
Dividends |
(9.1) |
(10.1) |
(11.0) |
(12.2) |
(13.1) |
(13.7) |
||
Other |
0.5 |
0.2 |
0.1 |
0.2 |
0.0 |
0.0 |
||
Net Cash Flow |
7.7 |
7.0 |
4.9 |
(4.8) |
5.5 |
6.3 |
||
Opening net debt/(cash) |
|
|
18.6 |
10.6 |
3.5 |
(1.3) |
3.7 |
(1.8) |
FX |
0.3 |
0.1 |
(0.1) |
(0.2) |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
0.1 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
10.6 |
3.5 |
(1.3) |
3.7 |
(1.8) |
(8.1) |
Source: XP Power, Edison Investment Research
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