Record order intake in H1

XP Power 3 August 2020 Update
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XP Power

Record order intake in H1

H120 results

Tech hardware & equipment

3 August 2020

Price

3,810p

Market cap

£740m

$1.31/£

Net debt (£m) at end H120

34.4

Shares in issue

19.2m

Free float

90%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

7.3

19.8

86.8

Rel (local)

11.5

19.1

135.3

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

Q3 trading update

12 October

Analyst

Katherine Thompson

+44 (0)20 3077 5730

XP Power is a research client of Edison Investment Research Limited

XP Power reported a strong performance in H1 considering the challenges presented by COVID-19 and a material uplift in orders provides a record backlog at the start of H2. With its diversified production capacity, a focus on higher complexity product targeted at growth markets and the ability to provide customer support globally, XP believes it will be in a stronger position post-COVID-19 than before. We have revised our forecasts to reflect the strong order intake, higher operating costs and higher share count.

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

22.0

2.2

12/19

199.9

33.2

145.5

55.0

26.2

1.4

12/20e

220.0

37.7

150.9

67.0

25.2

1.8

12/21e

227.9

41.7

167.0

87.0

22.8

2.3

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

Good H1 performance despite COVID-19 pressures

With the bulk of its manufacturing in China and Vietnam, XP was early to see the negative effects of COVID-19. However, its Asian business has returned to normal operation remarkably quickly compared to the disruption still being felt by European and US economies. Demand from healthcare and semiconductor production equipment (SPE) manufacturers has helped the company to report H120 revenue growth of 6% y-o-y, bookings growth of 45% and normalised diluted EPS growth of 1% while reducing net debt by 17% from the end of FY19. With more visibility and confidence in the business, management has decided to reinstate the dividend, announcing an 18p per share dividend for Q220.

Record order backlog supports H220

With a book-to-bill of 1.39x for H120 and an end-H1 backlog of £138.2m, the company has good visibility over production for H2. XP expects to continue to ship to SPE customers and the bulk of healthcare orders received in H1 will also be shipped in H2. We believe it would be difficult to ship the entire backlog in H2, providing further support to H121 revenues. Our forecasts assume that orders drop to more normal levels from Q320, and remain at this level for Q420 and FY21. We therefore expect growth to moderate in FY21. We have revised our forecasts to reflect stronger revenues, although higher levels of operating costs and the higher share count from a recent issue result in a decline in normalised diluted EPS of 2.2% in FY20 and 6.7% in FY21.

Valuation: Reflects resilience

The share has gained 79% from its low in March and is now at a similar level to its pre-COVID-19 peak. On a P/E basis, it is trading in line with global power converter companies and UK electronics companies for FY20, and at a c 16% premium for FY21, while generating EBIT margins at the top end of both peer groups. While there remains uncertainty over demand during this period of disruption, we highlight XP’s strong backlog and balance sheet.

Review of H120 results

Exhibit 1: H120 results highlights

£m

H120

H119

y-o-y

Revenues

105.1

98.9

6.3%

Gross profit

47.2

44.1

7.0%

Gross margin

44.9%

44.6%

0.3%

EBITDA

23.7

22.7

4.4%

EBITDA margin

22.5%

23.0%

-0.4%

Normalised operating profit

18.0

18.2

-1.1%

Normalised operating margin

17.1%

18.4%

-1.3%

Reported operating profit

11.3

14.5

-22.1%

Reported operating margin

10.8%

14.7%

-3.9%

Normalised PBT

17.0

16.6

2.4%

Normalised net income, after MI

13.8

13.5

2.2%

Reported net income, after MI

8.1

10.3

-21.4%

Normalised diluted EPS (p)

70.2

69.2

1.4%

Reported basic EPS (p)

42.0

53.8

-21.9%

Net debt

34.4

50.4

-31.7%

Source: XP Power, Edison Investment Research

XP Power reported revenue growth of 6% y-o-y, or 4% in constant currency. Revenues from own-design and manufacture grew 10% y-o-y to make up 81% of revenues (H119: 78%). Gross profit increased 7% y-o-y; the margin increased by 30bp as a result of changes in product and customer mix, which were partially offset by higher COVID-19-related costs. EBITDA increased 4% yo-y, while normalised operating profit decreased 1% y-o-y, reflecting higher depreciation and amortisation in H120. The company reported exceptional items totalling £5.1m, made up of £1.5m for the implementation of the ERP system, £0.3m in acquisition costs, £0.2m in legal costs, £2.2m in restructuring costs (closing Minden and the UK design facility; includes £1.2m write-off of capitalised development costs) and £0.9m fair value adjustments on a currency hedge.

Net finance cost was £1.0m and the effective tax rate was 20.4%. Overall, this resulted in normalised diluted EPS 1.4% higher year-on-year.

Cash generated from operations of £21.5m was lower than the £25.2m generated in H119 due to higher inventory requirements to fulfil increased levels of demand.

Net debt at the end of H120 was lower 32% y-o-y and 17% lower h-o-h. Net debt/adjusted EBITDA at the end of H120 was 0.74x. The company had previously decided not to pay a dividend for Q419 or for Q120 and this helped reduce the net debt balance. Based on the performance of the company year-to-date and the strong order book, management has reinstated the dividend with a Q2 dividend of 18p, the same as last year.

COVID-19 update

After disruption to Chinese manufacturing and the supply chain in Q120, the situation in Asia improved rapidly and the company increased production at its facilities in China and Vietnam through the course of Q220. As we have previously written, the company had started transferring production from China to Vietnam in 2019 to reduce the impact of the US/China trade tariffs, and this meant that a large proportion of manufacturing was not affected by the shutdown of the Chinese facility in Q1. The company noted that production facilities in the US and logistics operations worldwide are operating normally.

XP has chosen not to access government support, although it did take mandatory financial aid from the Singapore government for the 3% of employees based in Singapore, and it also has not reduced its workforce.

H1 order intake +45% y-o-y

From a demand perspective, the company has seen strong order intake in both Q1 and Q2. H120 order intake of £145.8m was 45% y-o-y higher (+41% constant currency), split out as £73.1m in Q1 (+34%) and £72.7m in Q2 (+58%). The H120 book-to-bill was 1.39x (Q120 1.49x, Q220 1.30x).

The SPE sector had started a cyclical recovery in Q419 and continued to place higher levels of orders through the course of H1. Customers have indicated to XP that they expect demand from their end customers to continue into H220 and FY21. XP saw unprecedented demand from its healthcare customers, which in turn were responding to stronger demand for their products as a result of the pandemic – the bulk of orders received in H1 are due for delivery in H2. Conversely, XP’s industrial customers have reduced the level of orders placed. While broadline distribution customers have continued to see reasonable demand from their own end customers, they have been reducing inventory, which has reduced orders placed with XP. This segment has a diverse range of customers and applications, and lower demand is likely to be a combination of reduced demand from end customers and issues with companies’ supply chains making it less necessary to have XP’s products available.

SPE and healthcare customers drive H120 performance

Exhibit 2: Revenues by geography and end market

£m

H120

H119

y-o-y

H120

H119

y-o-y

Europe

Asia

Semi manufacturing

0.4

0.2

100.0%

Semi manufacturing

0.4

0.2

100.0%

Technology

3.4

3.0

13.3%

Technology

4.6

0.5

820.0%

Industrial

17.3

24.1

-28.2%

Industrial

3.7

7.7

-51.9%

Healthcare

8.8

5.6

57.1%

Healthcare

2.6

1.3

100.0%

Total

29.9

32.9

-9.1%

Total

11.3

9.7

16.5%

North America

Group

Semi manufacturing

28.1

17.1

64.3%

Semi manufacturing

28.9

17.5

65.1%

Technology

4.1

7.3

-43.8%

Technology

12.1

10.8

12.0%

Industrial

14.9

15.4

-3.2%

Industrial

35.9

47.2

-23.9%

Healthcare

16.8

16.5

1.8%

Healthcare

28.2

23.4

20.5%

Total

63.9

56.3

13.5%

Total

105.1

98.9

6.3%

Source: XP Power

The table above shows revenues by geography and end market. The SPE market saw the highest revenue growth (65% y-o-y, 56% constant currency) as the sector started a cyclical recovery, helped by increased chip demand arising from the working from home trend (laptops, datacentre hardware, gaming consoles, TVs). Revenue from healthcare customers grew 21% y-o-y (16% constant currency) as certain customer programmes benefited from COVID-19-related demand, eg ventilators, continuous positive airway pressure (CPAP) machines, hospital beds, patient monitors, drug delivery systems, suction pumps and specialist ultrasound and lung X-ray applications. XP saw less demand for products going into robotic surgical tools and endoscopy, although expects this to change in H2 as hospitals revert to more normal operation treating the backlog of patients with non-COVID-19 conditions. The smallest segment, technology, saw 12% growth (9% constant currency), predominantly due to the resurgence of a programme in Asia for test and burn-in equipment. The industrial segment was the only one to show a decline (24% y-o-y) for the reasons described above.

On a geographic basis, North America saw the strongest growth (14%, or 10% constant currency) as this is where most SPE customers are located. Europe declined 9% as industrial customers make up the largest proportion of revenues. In Asia, growth of 17% (13% constant currency) was aided by the test and burn-in customer described above as well as growth in healthcare revenues.

Optimising the manufacturing base

The company bought more equipment for the Vietnamese facility in H120 to meet demand for product transferring from China and has increased capacity further during July. The Vietnam facility can now make 2,229 low voltage products (1,819 a year ago and c 2,000 at the end of 2019). Many customers qualified the Vietnam facility as a way to avoid the tariffs imposed by the US on product manufactured in China, and this proved beneficial when the China facility was temporarily closed in Q1. The impact of COVID-19 on China’s supply chain has prompted more customers to look to use the Vietnam facility. XP has a global supply chain manager who is focused on diversifying its supply chain so that the company is not reliant on materials and components from one country.

Even if the US decides to impose similar tariffs on Vietnamese-manufactured product, the company believes it would still have a cost advantage over those companies that continue to manufacture in China.

The company is in the midst of transferring production of low power, high voltage DC-DC modules from Minden, Nevada to Vietnam. The Vietnam facility is now capable of producing 350 different low power, high voltage modules. The Minden transfer is taking slightly longer than originally planned due to travel restrictions. XP had aimed to complete the transfer in June but now expects to complete it in Q320. The company has previously stated that it expects to make annualised cost savings of £4m once the transfer is complete, for a one-off cost of £1–2m (£1.5m incurred to date with a further £0.5m expected in H2).

Outlook and changes to forecasts

The company closed H120 with a backlog of £138.2m, compared to £98.2m at the end of FY19. This provides good visibility entering H2, and we expect that some of this will not ship until H121. The company expects to generate revenue growth in H2 on a year-on-year basis. We have revised our forecasts to reflect the following:

Revenue: we assume that the company is able to ship c £115m in H2 (just over £19m per month compared to £18.8m in June 2020). We have revised our currency forecasts for FY20 and FY21 from $1.31/£ to $1.28/£ based on the rate year-to-date. Although we have increased our FY21 forecast on an absolute basis, we note that we assume a slightly lower growth rate for FY21 (from 4.3% to 3.6%) from the higher base in FY20.

Operating costs: based on the level of costs in H120, we have increased our cost assumptions for H220 and FY21. The company noted that it did not accrue bonuses in FY19; however, with the recovery in orders in FY20, it now needs to take these into account.

Tax: the company has guided to a rate of 20–22%, as more profits are generated in the US, which has a higher rate than Singapore. We have increased our tax rate assumption from 18% to 20%.

EPS: we have reflected the 200,000 shares issued for the Employees’ Share Ownership Plan in March.

Dividend: we have reduced our dividend per share forecasts for both years, assuming that the company will aim to keep dividend cover at or above 2x.

Exhibit 3: Changes to forecasts

£m

FY20e

FY20e

FY21e

FY21e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

209.2

220.0

5.2%

10.1%

218.2

227.9

4.4%

3.6%

Gross profit

93.3

98.8

5.8%

9.6%

100.1

103.4

3.2%

4.7%

Gross margin

44.6%

44.9%

0.3%

(0.2%)

45.9%

45.4%

(0.5%)

0.5%

EBITDA

48.5

51.1

5.2%

12.5%

55.3

55.5

0.3%

8.6%

EBITDA margin

23.2%

23.2%

0.0%

0.5%

25.3%

24.3%

(1.0%)

1.1%

Normalised operating profit

38.6

39.7

2.7%

10.5%

45.1

43.7

(3.2%)

10.1%

Normalised operating margin

18.5%

18.0%

(0.4%)

0.1%

20.7%

19.2%

(1.5%)

1.1%

Reported operating profit

31.4

28.9

(8.2%)

8.1%

41.4

40.5

(2.2%)

40.2%

Reported operating margin

15.0%

13.1%

(1.9%)

(0.2%)

19.0%

17.8%

(1.2%)

4.6%

Normalised PBT

36.1

37.7

4.3%

13.4%

42.8

41.7

(2.6%)

10.6%

Reported PBT

28.9

26.9

(7.1%)

11.9%

39.1

38.5

(1.6%)

43.2%

Normalised net income

30.0

29.9

(0.4%)

5.2%

34.9

33.1

(5.1%)

10.6%

Reported net income

23.5

21.2

(9.5%)

3.6%

31.8

30.5

(4.0%)

43.7%

Normalised basic EPS (p)

157.2

153.8

(2.2%)

3.7%

182.5

170.2

(6.8%)

10.6%

Normalised diluted EPS (p)

154.3

150.9

(2.2%)

3.8%

179.1

167.0

(6.7%)

10.6%

Reported basic EPS (p)

122.9

109.3

(11.1%)

2.1%

166.6

157.0

(5.7%)

43.7%

Dividend per share (p)

77.0

67.0

(13.0%)

21.8%

99.0

87.0

(12.1%)

29.9%

Net debt/(cash)

35.6

39.9

11.9%

(3.4%)

28.5

31.1

9.3%

(21.9%)

Source: Edison Investment Research

Valuation

The share has gained 79% from its low in March and is now at a similar level to its pre-COVID-19 peak. On a P/E basis, it is trading in line with global power converter companies and UK electronics companies for FY21, and at a c 16% premium for FY21, while generating EBIT margins at the top end of both peer groups. While there remains uncertainty over demand during this period of disruption, we highlight XP’s strong backlog and balance sheet.

Exhibit 4: Peer group valuation multiples

Quoted

EBIT margin (%)

P/E (x)

EV/EBIT (x)

Div yield

Currency

CY

LY

CY

NY

LY

CY

NY

LY

CY

NY

XP Power

GBp

18.0

26.2

25.2

22.8

18.2

21.8

19.7

1.4%

1.8%

2.3%

Cosel

JPY

N/A

111.6

21.3

17.1

N/A

N/A

N/A

2.4%

2.5%

2.6%

Delta Electronics

TWD

9.6

25.1

20.2

17.4

18.2

15.7

22.3

2.8%

3.2%

3.5%

Advanced Energy Industries

USD

11.9

28.4

22.1

17.7

17.8

14.3

12.3

0.0%

0.0%

0.0%

Comet Holdings

CHF

11.2

64.6

34.5

25.6

25.0

18.7

N/A

0.8%

1.3%

1.9%

Diploma

GBp

16.4

28.7

32.8

29.6

25.1

23.1

21.9

1.6%

1.3%

1.6%

Electrocomponents

GBp

10.1

17.8

23.5

18.6

17.0

14.3

13.5

2.3%

2.4%

2.4%

Gooch & Housego

GBp

6.9

21.6

32.6

21.8

33.9

27.1

19.1

1.1%

0.3%

1.3%

TT Electronics

GBp

7.3

15.9

11.3

9.2

10.4

8.5

9.3

2.9%

3.7%

4.2%

Average power converter companies

10.9

57.4

24.5

19.5

20.3

16.3

17.3

1.5%

1.8%

2.0%

Average UK electronics companies

10.2

21.0

25.0

19.8

21.6

18.2

15.9

2.0%

1.9%

2.4%

Versus power converter companies

3%

17%

Versus UK electronics companies

1%

15%

Source: Edison Investment Research, Refinitiv (as at 30 July)

Exhibit 5: Financial summary

£m

2015

2016

2017

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

109.7

129.8

166.8

195.1

199.9

220.0

227.9

Cost of Sales

(55.1)

(67.8)

(89.2)

(102.8)

(109.8)

(121.3)

(124.5)

Gross Profit

54.6

62.0

77.6

92.3

90.1

98.8

103.4

EBITDA

 

 

29.7

33.0

41.7

49.2

45.4

51.1

55.5

Normalised operating profit

 

 

25.9

28.8

36.4

42.9

35.9

39.7

43.7

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)

(7.6)

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

25.6

28.0

32.5

39.3

26.7

28.9

40.5

Net Interest

(0.2)

(0.2)

(0.3)

(1.7)

(2.7)

(2.0)

(2.0)

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

37.7

41.7

Profit Before Tax (reported)

 

 

25.4

27.8

32.2

37.6

24.0

26.9

38.5

Reported tax

(5.5)

(6.3)

(3.6)

(7.2)

(3.2)

(5.4)

(7.7)

Profit After Tax (norm)

20.2

22.3

28.8

33.9

28.7

30.1

33.3

Profit After Tax (reported)

19.9

21.5

28.6

30.4

20.8

21.5

30.8

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

29.9

33.1

Net income (reported)

19.7

21.3

28.3

30.2

20.5

21.2

30.5

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

153.8

170.2

EPS - diluted normalised (p)

 

 

104.3

115.3

147.0

172.8

145.5

150.9

167.0

EPS - basic reported (p)

 

 

103.7

112.0

148.3

157.8

107.0

109.3

157.0

Dividend (p)

66

71

78

85

55

67

87

Revenue growth (%)

8.5

18.3

28.5

17.0

2.5

10.1

3.6

Gross Margin (%)

49.8

47.8

46.5

47.3

45.1

44.9

45.4

EBITDA Margin (%)

27.0

25.4

25.0

25.2

22.7

23.2

24.3

Normalised Operating Margin

23.6

22.2

21.8

22.0

18.0

18.0

19.2

BALANCE SHEET

Fixed Assets

 

 

65.4

73.2

88.1

129.2

137.4

141.1

142.6

Intangible Assets

48.2

53.0

63.9

97.7

99.6

102.7

103.3

Tangible Assets

16.1

19.1

22.5

30.7

35.9

36.5

37.4

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

100.8

107.2

Stocks

28.7

32.2

37.8

56.5

44.1

48.7

50.0

Debtors

17.5

21.5

23.8

33.0

34.8

38.6

40.0

Cash & cash equivalents

4.9

9.2

15.0

11.5

11.2

7.6

11.4

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)

(32.1)

(32.6)

Creditors

(14.6)

(16.1)

(21.4)

(22.4)

(25.2)

(26.9)

(27.4)

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

152.2

166.1

Minority interests

(0.8)

(0.8)

(0.9)

(1.0)

(0.7)

(0.8)

(0.8)

Shareholders' equity

 

 

88.3

106.1

116.0

136.4

138.2

151.5

165.3

CASH FLOW

Op Cash Flow before WC and tax

29.7

33.0

41.7

49.2

45.4

51.1

55.5

Working capital

(4.6)

(6.1)

0.4

(21.6)

10.6

(6.7)

(2.1)

Exceptional & other

0.6

5.1

(6.3)

3.2

(5.3)

(6.4)

0.0

Tax

(4.7)

(4.1)

(6.1)

(4.1)

(4.5)

(5.4)

(7.7)

Net operating cash flow

 

 

21.0

27.9

29.7

26.7

46.2

32.6

45.6

Capex

(5.4)

(6.8)

(10.1)

(15.0)

(16.3)

(19.5)

(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)

(2.0)

(2.0)

Equity financing

0.0

0.2

(0.2)

0.6

0.5

(0.6)

0.0

Dividends

(12.2)

(13.1)

(14.2)

(15.6)

(17.2)

(7.5)

(16.9)

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

1.4

8.7

Opening net debt/(cash)

 

 

(1.3)

3.7

(3.7)

9.0

52.0

41.3

39.9

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

39.9

31.2

Source: XP Power accounts, 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

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United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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

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

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