XP Power |
Strong finish to the year |
FY20 trading update |
Tech hardware & equipment |
12 January 2021 |
Share price performance
Business description
Next events
Analyst
XP Power is a research client of Edison Investment Research Limited |
XP reported a strong finish to 2020, with Q4 revenues up 24% y-o-y and 4% ahead of our forecast, driving FY20 profitability ahead of expectations. Order intake has normalised to pre-COVID-19 levels, reflecting continued strong demand from the semiconductor sector. We have revised our estimates to reflect strong Q420 performance and the weaker dollar, driving a 3.0% increase in FY20 EPS and a 2.3% cut to our FY21 EPS.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
12/18 |
195.1 |
41.2 |
172.8 |
85.0 |
29.5 |
1.7 |
12/19 |
199.9 |
33.2 |
145.5 |
55.0 |
35.1 |
1.1 |
12/20e |
232.9 |
41.9 |
167.9 |
72.0 |
30.4 |
1.4 |
12/21e |
227.4 |
42.2 |
169.2 |
92.0 |
30.1 |
1.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q420 revenue ahead; bookings in line
XP reported revenue of £58.8m for Q420 (+25% y-o-y, +26% constant currency, cc) and £232.9m for FY20 (+16% y-o-y), 1% ahead of our £230.7m forecast. Order intake was £55.9m for Q420 (-4% y-o-y, -2% cc) and £258.0m for FY20 (+20% y-o-y), in line with our forecast. Book-to-bill was 0.95x for Q420 and 1.11x for FY20. XP anticipates FY20 profits will be ahead of expectations due to strong healthcare demand driving efficiency gains and higher gross margins. Net debt at the end FY20 of £18.0m was substantially lower than our £38.2m forecast, mainly due to good working capital management, but aided by the weaker dollar at year-end. The company expects to propose a final dividend of at least 34p when it reports results on 2 March, ahead of our 30p forecast.
Forecast revisions reflect stronger demand and FX
Q4 order intake was strong, helped by demand from semiconductor equipment companies and XP expects further underlying (ie constant currency) revenue growth in FY21. We have revised our FY20 forecasts to reflect stronger revenues and higher than expected cash generation in Q420, lifting normalised diluted EPS by 3.0%. For FY21, while we have increased our cc revenue growth rate from 2.9% to 3.8%, a revision to our FY21 $/£ exchange rate forecast from 1.30 to 1.36, reflecting the weakening of the dollar over Q420, results in a 2.8% cut to our FY21 revenue forecast and a 2.3% cut in normalised diluted EPS. Our end FY21 net debt forecast reduces from £27.2m to £13.7m. We have raised our dividend forecasts for both years: FY20e from 68p to 72p, FY21e from 87p to 92p.
Valuation: Reflects robust performance
On a P/E basis, XP is trading at a premium to global power converter companies and UK electronics companies for FY20 and FY21. In our view, this reflects XP’s strong performance over a difficult year and EBIT margins ahead of both peer groups. While there remains uncertainty over demand in this period of disruption, we highlight XP’s strong backlog and balance sheet.
Changes to forecasts
We have made the following changes to forecasts:
■
Revenue: we have increased our dollar-based revenue growth forecast for FY21 from 2.9% to 3.8%, reflecting continued strong demand in Q420. We have revised our $/£ assumption for FY21 from 1.30 to 1.36 reflecting the recent weakening of the dollar versus sterling. Combined, this results in a 2.8% reduction in FY21 revenues.
■
Gross margin: we have increased this for H220 and FY21 to reflect better performance in H220.
■
Net interest cost: we have reduced this by £0.5m in FY21 to reflect the lower level of debt.
■
Net debt: we have reduced accounts receivable and inventory to reflect better collections and the weaker dollar at year-end. We have also factored in the exchange rate in the translation of the dollar-denominated debt.
■
Dividend: reflecting the higher-than-expected final dividend expected for FY20, we have increased our dividend forecasts for both years.
Exhibit 1: Changes to forecasts
£m |
FY20e |
FY21e |
|||||||
Old |
New |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
||
Revenues |
230.7 |
232.9 |
0.9% |
16.5% |
233.8 |
227.4 |
(2.8%) |
(2.3%) |
|
Gross profit |
103.9 |
107.3 |
3.3% |
19.1% |
106.0 |
104.3 |
(1.6%) |
(2.8%) |
|
Gross margin |
45.0% |
46.1% |
1.1% |
1.0% |
45.3% |
45.9% |
0.5% |
(0.2%) |
|
EBITDA |
54.0 |
55.3 |
2.3% |
21.7% |
57.0 |
55.5 |
(2.6%) |
0.5% |
|
EBITDA margin |
23.4% |
23.7% |
0.3% |
1.0% |
24.4% |
24.4% |
0.0% |
0.7% |
|
Normalised operating profit |
42.6 |
43.9 |
2.9% |
22.2% |
45.2 |
43.7 |
(3.3%) |
(0.3%) |
|
Normalised operating margin |
18.5% |
18.8% |
0.4% |
0.9% |
19.3% |
19.2% |
(0.1%) |
0.4% |
|
Reported operating profit |
31.8 |
33.1 |
3.9% |
23.8% |
42.0 |
40.5 |
(3.5%) |
22.6% |
|
Reported operating margin |
13.8% |
14.2% |
0.4% |
0.8% |
18.0% |
17.8% |
(0.1%) |
3.6% |
|
Normalised PBT |
40.6 |
41.9 |
3.0% |
26.1% |
43.2 |
42.2 |
(2.3%) |
0.9% |
|
Reported PBT |
29.8 |
31.1 |
4.1% |
29.4% |
40.0 |
39.0 |
(2.4%) |
25.6% |
|
Normalised net income |
32.3 |
33.2 |
3.0% |
17.1% |
34.3 |
33.5 |
(2.3%) |
0.8% |
|
Reported net income |
23.6 |
24.6 |
4.2% |
20.0% |
31.7 |
31.0 |
(2.5%) |
25.9% |
|
Normalised basic EPS (p) |
166.0 |
171.1 |
3.0% |
15.4% |
176.5 |
172.4 |
(2.3%) |
0.8% |
|
Normalised diluted EPS (p) |
162.9 |
167.9 |
3.0% |
15.4% |
173.2 |
169.2 |
(2.3%) |
0.8% |
|
Reported basic EPS (p) |
121.5 |
126.6 |
4.2% |
18.3% |
163.3 |
159.3 |
(2.5%) |
25.9% |
|
Dividend per share (p) |
68.0 |
72.0 |
5.9% |
30.9% |
87.0 |
92.0 |
5.7% |
27.8% |
|
Net debt/(cash) |
38.2 |
18.0 |
(52.9%) |
(56.4%) |
27.2 |
13.7 |
(49.6%) |
(23.7%) |
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 |
232.9 |
227.4 |
Cost of Sales |
(55.1) |
(67.8) |
(89.2) |
(102.8) |
(109.8) |
(125.5) |
(123.1) |
||
Gross Profit |
54.6 |
62.0 |
77.6 |
92.3 |
90.1 |
107.3 |
104.3 |
||
EBITDA |
|
|
29.7 |
33.0 |
41.7 |
49.2 |
45.4 |
55.3 |
55.5 |
Normalised operating profit |
|
|
25.9 |
28.8 |
36.4 |
42.9 |
35.9 |
43.9 |
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 |
33.1 |
40.5 |
||
Net Interest |
(0.2) |
(0.2) |
(0.3) |
(1.7) |
(2.7) |
(2.0) |
(1.5) |
||
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 |
41.9 |
42.2 |
Profit Before Tax (reported) |
|
|
25.4 |
27.8 |
32.2 |
37.6 |
24.0 |
31.1 |
39.0 |
Reported tax |
(5.5) |
(6.3) |
(3.6) |
(7.2) |
(3.2) |
(6.2) |
(7.8) |
||
Profit After Tax (norm) |
20.2 |
22.3 |
28.8 |
33.9 |
28.7 |
33.5 |
33.8 |
||
Profit After Tax (reported) |
19.9 |
21.5 |
28.6 |
30.4 |
20.8 |
24.8 |
31.2 |
||
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 |
33.2 |
33.5 |
||
Net income (reported) |
19.7 |
21.3 |
28.3 |
30.2 |
20.5 |
24.6 |
31.0 |
||
Basic average number of shares outstanding (m) |
19.0 |
19.0 |
19.1 |
19.1 |
19.2 |
19.4 |
19.4 |
||
EPS - basic normalised (p) |
|
|
105.3 |
116.2 |
149.4 |
176.1 |
148.3 |
171.1 |
172.4 |
EPS - diluted normalised (p) |
|
|
104.3 |
115.3 |
147.0 |
172.8 |
145.5 |
167.9 |
169.2 |
EPS - basic reported (p) |
|
|
103.7 |
112.0 |
148.3 |
157.8 |
107.0 |
126.6 |
159.3 |
Dividend (p) |
66 |
71 |
78 |
85 |
55 |
72 |
92 |
||
Revenue growth (%) |
8.5 |
18.3 |
28.5 |
17.0 |
2.5 |
16.5 |
(-2.3) |
||
Gross Margin (%) |
49.8 |
47.8 |
46.5 |
47.3 |
45.1 |
46.1 |
45.9 |
||
EBITDA Margin (%) |
27.0 |
25.4 |
25.0 |
25.2 |
22.7 |
23.7 |
24.4 |
||
Normalised Operating Margin |
23.6 |
22.2 |
21.8 |
22.0 |
18.0 |
18.8 |
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 |
109.9 |
111.9 |
Stocks |
28.7 |
32.2 |
37.8 |
56.5 |
44.1 |
45.7 |
44.9 |
||
Debtors |
17.5 |
21.5 |
23.8 |
33.0 |
34.8 |
33.8 |
37.4 |
||
Cash & cash equivalents |
4.9 |
9.2 |
15.0 |
11.5 |
11.2 |
24.5 |
23.8 |
||
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) |
(36.8) |
(33.5) |
Creditors |
(14.6) |
(16.1) |
(21.4) |
(22.4) |
(25.2) |
(31.6) |
(28.3) |
||
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) |
(52.6) |
(46.1) |
Long term borrowings |
(4.6) |
0.0 |
(24.0) |
(63.5) |
(57.3) |
(45.8) |
(39.3) |
||
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 |
161.6 |
174.9 |
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 |
160.8 |
174.1 |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
29.7 |
33.0 |
41.7 |
49.2 |
45.4 |
55.3 |
55.5 |
||
Working capital |
(4.6) |
(6.1) |
0.4 |
(21.6) |
10.6 |
5.8 |
(6.1) |
||
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) |
(6.2) |
(7.8) |
||
Net operating cash flow |
|
|
21.0 |
27.9 |
29.7 |
26.7 |
46.2 |
48.4 |
41.7 |
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) |
(1.5) |
||
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) |
(17.9) |
||
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 |
17.3 |
4.3 |
||
Opening net debt/(cash) |
|
|
(1.3) |
3.7 |
(3.7) |
9.0 |
52.0 |
41.3 |
18.0 |
FX |
(0.2) |
(0.5) |
0.6 |
(2.7) |
1.7 |
6.0 |
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 |
18.0 |
13.7 |
Source: XP Power, Edison Investment Research
|
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