XP Power |
Q3 order intake encouraging |
Q3 trading update |
Tech hardware & equipment |
10 October 2019 |
Share price performance
Business description
Next events
Analyst
XP Power is a research client of Edison Investment Research Limited |
Despite a tough trading environment in Q3, XP Power saw improving order flow and a book-to-bill ratio of 1.04x for the quarter and management anticipates meeting its FY19 expectations. Helped by currency, our FY19 revenue forecast appears conservative but in the face of volatile trading conditions, we maintain our estimates.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
12/17 |
166.8 |
36.1 |
147.0 |
78.0 |
15.9 |
3.3 |
12/18 |
195.1 |
41.2 |
172.8 |
85.0 |
13.5 |
3.6 |
12/19e |
199.8 |
36.8 |
153.7 |
88.0 |
15.2 |
3.8 |
12/20e |
209.0 |
39.9 |
166.9 |
92.0 |
14.0 |
3.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q319 sees better performance
XP reported Q319 revenues of £53.8m, 2% higher y-o-y (-1% in constant currency) and 3% higher q-o-q. Order intake of £55.9m was 8% higher y-o-y (+4% in constant currency) and 22% higher q-o-q, resulting in a book-to-bill ratio of 1.04x for Q319. The company noted that order intake from healthcare, industrial and technology customers remained robust but orders from semiconductor equipment manufacturing customers (18% of H119 revenues) saw no notable recovery. XP announced a Q3 dividend of 20p (in line with our estimate), payable on 13 January 2020 to shareholders at 13 December 2019. Net cash (excluding lease liabilities) reduced slightly to £50.0m from £50.4m at the end of Q219. As the debt is US dollar denominated, this implies a larger reduction in the underlying debt.
FY19 outlook unchanged
Management anticipates group performance in line with its expectations as outlined at its interims in August (ie for H2 revenues to grow versus H1). To achieve our FY19 revenue forecast implies Q419 revenues of £47.1m (-4% y-o-y and -12%
q-o-q), which, based on the order intake for Q3, look achievable. We make no changes to our forecasts, bearing in mind volatility around trade tariffs and sterling.
Valuation: Confidence returning
The stock is up 9% year to date and 15% since interims were announced in August. The stock has partially reduced the discount versus UK electronics and international power converter peers but continues to trade at a discount of c 30% and c 40% respectively on a current year P/E basis while offering a strong dividend yield. The company has taken steps to mitigate the impact of trade tariffs between China and the US as well as preparing for Brexit; evidence that margins are benefiting from this self-help should support upside to the stock. A return to order growth from the semiconductor equipment sector would be a further trigger for upside.
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 |
199.8 |
209.0 |
Cost of Sales |
(49.0) |
(51.5) |
(51.0) |
(55.1) |
(67.8) |
(89.2) |
(102.8) |
(110.9) |
(114.1) |
||
Gross Profit |
44.9 |
49.6 |
50.1 |
54.6 |
62.0 |
77.6 |
92.3 |
88.9 |
94.9 |
||
EBITDA |
|
|
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.7 |
49.2 |
49.0 |
52.5 |
Normalised operating profit |
|
|
21.0 |
23.3 |
24.5 |
25.9 |
28.8 |
36.4 |
42.9 |
40.0 |
42.9 |
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 |
33.7 |
39.2 |
||
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 |
36.8 |
39.9 |
Profit Before Tax (reported) |
|
|
20.2 |
22.9 |
24.3 |
25.4 |
27.8 |
32.2 |
37.6 |
30.5 |
36.2 |
Reported tax |
(4.5) |
(4.5) |
(4.8) |
(5.5) |
(6.3) |
(3.6) |
(7.2) |
(5.5) |
(6.5) |
||
Profit After Tax (norm) |
15.7 |
18.4 |
19.5 |
20.2 |
22.3 |
28.8 |
33.9 |
30.2 |
32.7 |
||
Profit After Tax (reported) |
15.7 |
18.4 |
19.5 |
19.9 |
21.5 |
28.6 |
30.4 |
25.0 |
29.7 |
||
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 |
29.9 |
32.5 |
||
Net income (reported) |
15.5 |
18.2 |
19.4 |
19.7 |
21.3 |
28.3 |
30.2 |
24.8 |
29.4 |
||
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 |
156.6 |
170.1 |
EPS - diluted normalised (p) |
|
|
81.3 |
95.1 |
101.1 |
104.3 |
115.3 |
147.0 |
172.8 |
153.7 |
166.9 |
EPS - basic reported (p) |
|
|
81.7 |
95.8 |
102.1 |
103.7 |
112.0 |
148.3 |
157.8 |
129.7 |
154.1 |
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 |
2.4 |
4.6 |
||
Gross Margin (%) |
47.8 |
49.1 |
49.6 |
49.8 |
47.8 |
46.5 |
47.3 |
44.5 |
45.4 |
||
EBITDA Margin (%) |
24.8 |
25.7 |
27.3 |
27.0 |
25.4 |
25.0 |
25.2 |
24.5 |
25.1 |
||
Normalised Operating Margin |
22.4 |
23.0 |
24.2 |
23.6 |
22.2 |
21.8 |
22.0 |
20.0 |
20.5 |
||
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 |
105.0 |
110.5 |
Stocks |
19.8 |
20.4 |
25.2 |
28.7 |
32.2 |
37.8 |
56.5 |
57.7 |
56.3 |
||
Debtors |
14.2 |
15.4 |
16.0 |
17.5 |
21.5 |
23.8 |
33.0 |
32.8 |
34.4 |
||
Cash & cash equivalents |
4.1 |
5.0 |
3.8 |
4.9 |
9.2 |
15.0 |
11.5 |
10.3 |
15.8 |
||
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) |
(31.1) |
(32.0) |
Creditors |
(11.1) |
(12.7) |
(14.4) |
(14.6) |
(16.1) |
(21.4) |
(22.4) |
(24.8) |
(25.7) |
||
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) |
(68.0) |
(63.0) |
Long term borrowings |
(7.4) |
0.0 |
0.0 |
(4.6) |
0.0 |
(24.0) |
(63.5) |
(61.4) |
(56.4) |
||
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 |
147.5 |
160.3 |
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 |
146.4 |
159.2 |
CASH FLOW |
|||||||||||
Op Cash Flow before WC and tax |
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.7 |
49.2 |
49.0 |
52.5 |
||
Working capital |
4.2 |
(0.3) |
(4.1) |
(4.6) |
(6.1) |
0.4 |
(21.6) |
1.3 |
0.9 |
||
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) |
(5.5) |
(6.5) |
||
Net operating cash flow |
|
|
23.6 |
20.2 |
21.8 |
21.0 |
27.9 |
29.7 |
26.7 |
42.2 |
46.9 |
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) |
(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) |
3.8 |
10.5 |
||
Opening net debt/(cash) |
|
|
18.6 |
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
9.0 |
52.0 |
53.0 |
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) |
(4.8) |
0.0 |
||
Closing net debt/(cash) |
|
|
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
9.0 |
52.0 |
53.0 |
42.5 |
Source: XP Power, Edison Investment Research
|
|