XP Power — Q1 book-to-bill of 1.16x

XP Power (LSE: XPP)

Last close As at 18/04/2024

GBP10.60

4.00 (0.38%)

Market capitalisation

GBP252m

More on this equity

Research: TMT

XP Power — Q1 book-to-bill of 1.16x

XP’s Q1 revenues reflect varying performance by end-market: encouraging growth from industrial, healthcare and technology customers was offset by the expected decline in demand from the semiconductor sector. Order intake was higher on a year-on-year and quarter-on-quarter basis, resulting in a book-to-bill of 1.16x for the quarter. With management’s full-year expectations unchanged, we maintain our forecasts.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

XP Power

Q1 book-to-bill of 1.16x

Q1 trading update

Tech hardware & equipment

15 April 2019

Price

2,540p

Market cap

£486m

$1.31:£1

Net debt (£m) at 31 March 2019

49.1

Shares in issue

19.2m

Free float

90%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

11.9

13.4

(27.8)

Rel (local)

7.8

5.8

(29.1)

52-week high/low

3710p

1965p

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

H119 results

1 August 2019

Analyst

Katherine Thompson

+44 (0)20 3077 5730

XP Power is a research client of Edison Investment Research Limited

XP’s Q1 revenues reflect varying performance by end-market: encouraging growth from industrial, healthcare and technology customers was offset by the expected decline in demand from the semiconductor sector. Order intake was higher on a year-on-year and quarter-on-quarter basis, resulting in a book-to-bill of 1.16x for the quarter. With management’s full-year expectations unchanged, we maintain our forecasts.

Year end

Revenue (£m)

PBT*
(£m)

Dil. EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

166.8

36.1

147.0

78.0

17.3

3.1

12/18

195.1

41.2

172.8

85.0

14.7

3.3

12/19e

210.3

43.9

184.2

88.0

13.8

3.5

12/20e

220.0

46.0

192.4

92.0

13.2

3.6

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

Q119 revenues weaker as expected

XP reported Q119 revenues of £46.9m, 1% higher than a year ago. On a constant currency basis, revenues declined 5% and like-for-like revenues (excluding Glassman) declined 12% y-o-y. XP had already flagged weaker demand from the semiconductor sector and this continued through Q1. The other markets (industrial, healthcare, technology) that make up c 75% of revenues saw good demand in the quarter. The company announced a 17p quarterly dividend, in line with our forecast, which will be paid on 11 July to shareholders as at 14 June. Net debt reduced from £52.0m at the end of FY18 to £49.1m by the end of Q119.

Order intake supports FY19 revenue expectations

XP received orders worth £54.6m in Q1, 7% higher than a year ago and 21% ahead of last quarter. Constant currency orders were flat and like-for-like orders were down 4% y-o-y. This resulted in a book-to-bill of 1.16x for the quarter. Management continues to expect a year of revenue growth, with growth weighted to the second half, and maintains expectations for the year. We leave our estimates unchanged.

Valuation: Still trading at a discount

Since the company reported FY18 results in March, the stock has gained 28%. Despite the discount narrowing, XP still trades at a more than 20% discount to both power converter and UK electronics peers on a P/E basis, and has a dividend yield at the top end of the range. With a broad product portfolio focused on structural growth markets, local customer support, control over the manufacturing process and strong cash generation, we view the company as well positioned to grow market share while maintaining high operating margins. Evidence of order growth in the semiconductor equipment sector is likely to be the key trigger for share price upside from this point.

Exhibit 1: 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

210.3

220.0

Cost of Sales

(49.0)

(51.5)

(51.0)

(55.1)

(67.8)

(89.2)

(102.8)

(112.8)

(117.3)

Gross Profit

44.9

49.6

50.1

54.6

62.0

77.6

92.3

97.5

102.7

EBITDA

 

 

23.3

26.0

27.6

29.7

33.0

41.7

49.2

52.9

55.8

Normalised operating profit

 

 

21.0

23.3

24.5

25.9

28.8

36.4

42.9

45.7

47.8

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

(0.4)

(0.6)

(2.8)

(4.4)

(4.4)

Exceptionals

0.0

0.0

0.0

(0.3)

(0.4)

(3.3)

(0.8)

(1.0)

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

39.8

42.9

Net Interest

(0.8)

(0.4)

(0.2)

(0.2)

(0.2)

(0.3)

(1.7)

(1.8)

(1.8)

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

43.9

46.0

Profit Before Tax (reported)

 

 

20.2

22.9

24.3

25.4

27.8

32.2

37.6

38.0

41.1

Reported tax

(4.5)

(4.5)

(4.8)

(5.5)

(6.3)

(3.6)

(7.2)

(6.8)

(7.4)

Profit After Tax (norm)

15.7

18.4

19.5

20.2

22.3

28.8

33.9

36.1

37.7

Profit After Tax (reported)

15.7

18.4

19.5

19.9

21.5

28.6

30.4

31.2

33.7

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

35.8

37.4

Net income (reported)

15.5

18.2

19.4

19.7

21.3

28.3

30.2

30.9

33.4

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

187.7

196.1

EPS - diluted normalised (p)

 

 

81.3

95.1

101.1

104.3

115.3

147.0

172.8

184.2

192.4

EPS - basic reported (p)

 

 

81.7

95.8

102.1

103.7

112.0

148.3

157.8

162.1

175.2

Dividend (p)

50

55

61

66

71

78

85

88

92

Revenue growth (%)

(9.4)

7.7

0.0

8.5

18.3

28.5

17.0

7.8

4.6

Gross Margin (%)

47.8

49.1

49.6

49.8

47.8

46.5

47.3

46.4

46.7

EBITDA Margin (%)

24.8

25.7

27.3

27.0

25.4

25.0

25.2

25.2

25.3

Normalised Operating Margin

22.4

23.0

24.2

23.6

22.2

21.8

22.0

21.7

21.7

BALANCE SHEET

Fixed Assets

 

 

52.8

53.3

56.1

65.4

73.2

88.1

129.2

138.1

140.7

Intangible Assets

38.1

39.1

40.5

48.2

53.0

63.9

97.7

100.4

100.0

Tangible Assets

13.2

12.7

14.4

16.1

19.1

22.5

30.7

36.9

39.9

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

109.5

119.9

Stocks

19.8

20.4

25.2

28.7

32.2

37.8

56.5

55.6

57.9

Debtors

14.2

15.4

16.0

17.5

21.5

23.8

33.0

34.6

36.2

Cash & cash equivalents

4.1

5.0

3.8

4.9

9.2

15.0

11.5

15.2

21.7

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)

(30.3)

(31.4)

Creditors

(11.1)

(12.7)

(14.4)

(14.6)

(16.1)

(21.4)

(22.4)

(25.9)

(27.0)

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

0.0

0.0

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)

(65.1)

(60.1)

Long term borrowings

(7.4)

0.0

0.0

(4.6)

0.0

(24.0)

(63.5)

(58.5)

(53.5)

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

152.2

169.0

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

151.1

167.9

CASH FLOW

Op Cash Flow before WC and tax

23.3

26.0

27.6

29.7

33.0

41.7

49.2

52.9

55.8

Working capital

4.2

(0.3)

(4.1)

(4.6)

(6.1)

0.4

(21.6)

2.8

(2.7)

Exceptional & other

0.4

(0.5)

1.9

0.6

5.1

(6.3)

3.2

(1.0)

0.0

Tax

(4.3)

(5.0)

(3.6)

(4.7)

(4.1)

(6.1)

(4.1)

(6.8)

(7.4)

Net operating cash flow

 

 

23.6

20.2

21.8

21.0

27.9

29.7

26.7

47.8

45.7

Capex

(4.7)

(3.2)

(5.8)

(5.4)

(6.8)

(10.1)

(15.0)

(20.5)

(15.0)

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)

(1.8)

(1.8)

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)

(17.4)

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)

8.7

11.5

Opening net debt/(cash)

 

 

18.6

10.6

3.5

(1.3)

3.7

(3.7)

9.0

52.0

43.3

FX

0.3

0.1

(0.1)

(0.2)

(0.5)

0.6

(2.7)

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.1

(0.2)

0.0

(0.1)

0.0

0.0

Closing net debt/(cash)

 

 

10.6

3.5

(1.3)

3.7

(3.7)

9.0

52.0

43.3

31.8

Source: XP Power, Edison Investment Research

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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.

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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 Edison analyst 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.

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Research: Industrials

Mytilineos — Cash flow miner, growth generator

Mytilineos leverages its low-cost structure and strong competitive positioning to generate robust cash flow (FCF yield of 14–16% in 2019–22e), supporting both dividends (3.7% FY18 yield with 13% CAGR) and large growth investments with potentially double-digit returns, which could boost current EBITDA by c 50% (in addition to our current forecasts). The stock trades at more than a 40% discount to other European diversified industrial companies on P/E and EV/EBITDA and at more than a 40% discount to a SOTP based on international peers’ multiples.

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