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Last close As at 09/06/2023
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Research: TMT
XP’s Q122 trading update confirms demand has remained strong across the board, with order intake up 39% y-o-y. Ongoing supply chain issues limited the amount of product that could be shipped in the quarter, with revenue up 8% y-o-y. We have revised our forecasts to take account of supply chain headwinds and the recent US legal case, reducing our normalised diluted EPS forecast by 7.1% for FY22 and 4.2% for FY23.
XP Power |
Demand outpacing supply |
Q122 trading update |
Tech hardware & equipment |
14 April 2022 |
Share price performance
Business description
Next events
Analyst
XP Power is a research client of Edison Investment Research Limited |
XP’s Q122 trading update confirms demand has remained strong across the board, with order intake up 39% y-o-y. Ongoing supply chain issues limited the amount of product that could be shipped in the quarter, with revenue up 8% y-o-y. We have revised our forecasts to take account of supply chain headwinds and the recent US legal case, reducing our normalised diluted EPS forecast by 7.1% for FY22 and 4.2% for FY23.
Year end |
Revenue (£m) |
PBT* |
Dil. EPS* |
DPS |
P/E |
Yield |
12/20 |
233.3 |
44.3 |
198.4 |
74 |
17.5 |
2.1 |
12/21 |
240.3 |
43.8 |
176.3 |
94 |
19.7 |
2.7 |
12/22e |
260.2 |
47.0 |
189.2 |
94 |
18.4 |
2.7 |
12/23e |
282.2 |
54.6 |
220.0 |
97 |
15.8 |
2.8 |
Note: *PBT and EPS (diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong order intake drives Q1 book-to-bill of 1.66x
XP Power reported Q122 order intake of £102.4m, up 39% y-o-y and 16% q-o-q (+37% y-o-y in constant currency). Demand has remained strong across all end markets and the order book was c £260m at the end of Q122, up from £216m at the end of FY21. Q122 revenue of £61.8m was up 8% y-o-y (7% constant currency) and 5% q-o-q. Excluding the FuG and Guth acquisitions, revenue was 1% higher y-o-y in constant currency. Shipments were affected by continued shortages of key components, logistics issues and ongoing COVID-19 effects. XP implemented phase two of its ERP upgrade in early March, which also had a modest impact on revenue. The company announced a Q1 dividend of 18p per share (flat year-on-year). XP confirmed Perak, North West Malaysia, as the location for its third Asian production facility, where it intends to break ground this year.
Forecasts reflect heavier H2 weighting
We have revised our forecasts to reflect lower product shipments in Q1; although we factor in sequential growth in revenue through the year and order backlog is at record levels, we have cut our FY22 revenue forecast by 3% and FY23 by 2% to reflect supply chain challenges. This results in EPS cuts of 7.1% in FY22 and 4.2% in FY23. We have also factored in payment of the damages award and related legal costs from the recent litigation with Comet. We forecast a net debt/EBITDA ratio of 1.8x by end FY22 (within banking covenants limit of 3x).
Valuation: Pressured by supply chain & legal issues
On a P/E basis for FY22, XP is trading in line with global power solution companies and at a discount to UK electronics companies, with a dividend yield at the upper end of the range. XP generates EBITDA and EBIT margins at the top end of both peer groups and has a record order book entering Q222. In our view, evidence that supply chain issues are abating, litigation has been resolved and FuG and Guth are being successfully integrated will be key drivers of the share price.
Outlook and changes to forecasts
Management noted that it enters Q222 with a very strong order book. While there are ongoing uncertainties regarding component supply and freight capacity and costs, management is optimistic on XP’s prospects for FY22 and is progressing its planned investment in Malaysia. Longer term, it believes the company is well positioned to grow ahead of its end markets.
The company noted that net debt at the end of Q122 was £81.5m, up from £24.6m at the end of FY21. This reflects the £32.8m paid to acquire FuG and Guth, legal fees and an increase in working capital of c £12m to meet the increased backlog. Management estimates this working capital investment will be sufficient to meet the expected revenue ramp-up through FY22. By the end of H122, the company expects net debt/EBITDA to rise to 2.0–2.3x, within the banking covenants’ maximum of 3.0x. This takes into account the damages claim and related legal costs (see below). Management expects this to reduce below 2.0x by year-end. The company noted that it has put through targeted price increases to reflect the inflationary environment.
We have revised our forecasts to reflect Q122 revenue and orders. We assume sequential growth in revenue on a quarterly basis through FY22, but from the lower base in Q1, this results in a 3.1% reduction in our FY22 revenue forecast as supply chain challenges persist. For FY23, we reduce our revenue forecast by 2.3%, equating to 8.5% growth year-on-year. This flows through to a reduction in our normalised EPS forecasts of 7.1% in FY22 and 4.2% in FY23.
In March, the company announced that in the US legal action brought by Comet Technologies USA, Comet and YXLON International (Comet) for trade secrets misappropriation, the jury found in favour of Comet and awarded damages of $40m against the company. The board is awaiting the formal judgement and is assessing its next steps. We have factored the $40m damages payment into our forecasts as an exceptional item. We also include our estimate for related legal costs of $20m.
We have reduced our FY22 and FY23 dividend forecasts, assuming FY22 dividend is flat versus FY21 (Q122 dividend of 18p per share is flat year-on-year).
Exhibit 1: Changes to forecasts
£'m |
FY22e |
FY22e |
FY23e |
FY23e |
|||||
Old |
New |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
||
Revenues |
268.6 |
260.2 |
(3.1%) |
8.3% |
289.0 |
282.2 |
(2.3%) |
8.5% |
|
Gross profit |
124.7 |
120.1 |
(3.7%) |
10.9% |
135.8 |
132.7 |
(2.3%) |
10.5% |
|
Gross margin |
46.4% |
46.1% |
(0.3%) |
1.1% |
47.0% |
47.0% |
0.0% |
0.9% |
|
EBITDA |
64.5 |
61.5 |
(4.7%) |
10.8% |
72.0 |
70.2 |
(2.5%) |
14.1% |
|
EBITDA margin |
24.0% |
23.6% |
(0.4%) |
0.5% |
24.9% |
24.9% |
(0.0%) |
1.2% |
|
Normalised operating profit |
52.0 |
49.0 |
(5.8%) |
8.6% |
58.4 |
56.6 |
(3.0%) |
15.5% |
|
Normalised operating margin |
19.4% |
18.8% |
(0.5%) |
0.1% |
20.2% |
20.0% |
(0.1%) |
1.2% |
|
Reported operating profit |
47.8 |
(1.4) |
(102.9%) |
(104.6%) |
55.2 |
53.4 |
(3.2%) |
N/A |
|
Reported operating margin |
17.8% |
(0.5%) |
(18.3%) |
(12.9%) |
19.1% |
18.9% |
(0.2%) |
19.4% |
|
Normalised PBT |
50.5 |
47.0 |
(7.0%) |
7.3% |
56.9 |
54.6 |
(4.0%) |
16.2% |
|
Reported PBT |
46.3 |
(3.4) |
(107.3%) |
(111.9%) |
53.7 |
51.4 |
(4.2%) |
N/A |
|
Normalised net income |
40.7 |
37.8 |
(7.1%) |
8.0% |
45.9 |
44.0 |
(4.2%) |
16.3% |
|
Reported net income |
37.3 |
(3.0) |
(108.0%) |
(113.2%) |
43.3 |
41.4 |
(4.3%) |
N/A |
|
Normalised basic EPS (p) |
207.3 |
192.5 |
(7.1%) |
7.4% |
233.6 |
223.9 |
(4.2%) |
16.3% |
|
Normalised diluted EPS (p) |
203.7 |
189.2 |
(7.1%) |
7.4% |
229.6 |
220.0 |
(4.2%) |
16.3% |
|
Reported basic EPS (p) |
190.0 |
(15.2) |
(108.0%) |
(113.1%) |
220.3 |
210.9 |
(4.3%) |
N/A |
|
Dividend per share (p) |
97.0 |
94.0 |
(3.1%) |
0.0% |
101.0 |
97.0 |
(4.0%) |
3.2% |
|
Net debt/(cash) |
64.7 |
106.4 |
64.3% |
332.3% |
55.4 |
98.7 |
78.3% |
(7.2%) |
|
Orders |
322.6 |
365.3 |
13.2% |
6.4% |
322.0 |
326.0 |
1.2% |
(10.7%) |
|
Net debt/EBITDA (x) |
1.0 |
1.8 |
0.8 |
1.4 |
Source: Edison Investment Research
Exhibit 2: Financial summary
£'m |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||||||
Revenue |
|
|
109.7 |
129.8 |
166.8 |
195.1 |
199.9 |
233.3 |
240.3 |
260.2 |
282.2 |
Cost of Sales |
(55.1) |
(67.8) |
(89.2) |
(102.8) |
(109.8) |
(123.2) |
(132.0) |
(140.1) |
(149.5) |
||
Gross Profit |
54.6 |
62.0 |
77.6 |
92.3 |
90.1 |
110.1 |
108.3 |
120.1 |
132.7 |
||
EBITDA |
|
|
29.7 |
33.0 |
41.7 |
49.2 |
44.5 |
56.8 |
55.5 |
61.5 |
70.2 |
Normalised operating profit |
|
|
25.9 |
28.8 |
36.4 |
42.9 |
35.0 |
46.0 |
45.1 |
49.0 |
56.6 |
Amortisation of acquired intangibles |
0.0 |
(0.4) |
(0.6) |
(2.8) |
(3.2) |
(3.2) |
(2.8) |
(3.2) |
(3.2) |
||
Exceptionals |
(0.3) |
(0.4) |
(3.3) |
(0.8) |
(5.1) |
(5.4) |
(12.6) |
(47.2) |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
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 |
37.4 |
29.7 |
(1.4) |
53.4 |
||
Net Interest |
(0.2) |
(0.2) |
(0.3) |
(1.7) |
(2.7) |
(1.7) |
(1.3) |
(2.0) |
(2.0) |
||
Joint ventures & associates (post tax) |
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) |
|
|
25.7 |
28.6 |
36.1 |
41.2 |
32.3 |
44.3 |
43.8 |
47.0 |
54.6 |
Profit Before Tax (reported) |
|
|
25.4 |
27.8 |
32.2 |
37.6 |
24.0 |
35.7 |
28.4 |
(3.4) |
51.4 |
Reported tax |
(5.5) |
(6.3) |
(3.6) |
(7.2) |
(3.2) |
(4.0) |
(5.4) |
0.6 |
(9.7) |
||
Profit After Tax (norm) |
20.2 |
22.3 |
28.8 |
33.9 |
27.9 |
39.2 |
35.4 |
38.1 |
44.2 |
||
Profit After Tax (reported) |
19.9 |
21.5 |
28.6 |
30.4 |
20.8 |
31.7 |
23.0 |
(2.7) |
41.7 |
||
Minority interests |
(0.2) |
(0.2) |
(0.3) |
(0.2) |
(0.3) |
(0.2) |
(0.4) |
(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) |
20.0 |
22.1 |
28.5 |
33.7 |
27.6 |
39.0 |
35.0 |
37.8 |
44.0 |
||
Net income (reported) |
19.7 |
21.3 |
28.3 |
30.2 |
20.5 |
31.5 |
22.6 |
(3.0) |
41.4 |
||
Basic ave. number of shares outstanding (m) |
19.0 |
19.0 |
19.1 |
19.1 |
19.2 |
19.3 |
19.5 |
19.6 |
19.6 |
||
EPS - basic normalised (p) |
|
|
105.3 |
116.2 |
149.4 |
176.1 |
144.1 |
201.8 |
179.4 |
192.5 |
223.9 |
EPS - diluted normalised (p) |
|
|
104.3 |
115.3 |
147.0 |
172.8 |
141.4 |
198.4 |
176.3 |
189.2 |
220.0 |
EPS - basic reported (p) |
|
|
103.7 |
112.0 |
148.3 |
157.8 |
107.0 |
163.0 |
115.8 |
(15.2) |
210.9 |
Dividend (p) |
66 |
71 |
78 |
85 |
55 |
74 |
94 |
94 |
97 |
||
Revenue growth (%) |
8.5 |
18.3 |
28.5 |
17.0 |
2.5 |
16.7 |
3.0 |
8.3 |
8.5 |
||
Gross Margin (%) |
49.8 |
47.8 |
46.5 |
47.3 |
45.1 |
47.2 |
45.1 |
46.1 |
47.0 |
||
EBITDA Margin (%) |
27.0 |
25.4 |
25.0 |
25.2 |
22.3 |
24.3 |
23.1 |
23.6 |
24.9 |
||
Normalised Operating Margin |
23.6 |
22.2 |
21.8 |
22.0 |
17.5 |
19.7 |
18.8 |
18.8 |
20.0 |
||
BALANCE SHEET |
|||||||||||
Fixed Assets |
|
|
65.4 |
73.2 |
88.1 |
129.2 |
137.4 |
135.2 |
150.5 |
197.1 |
204.8 |
Intangible Assets |
48.2 |
53.0 |
63.9 |
97.7 |
99.6 |
98.8 |
108.8 |
147.0 |
149.8 |
||
Tangible Assets |
16.1 |
19.1 |
22.5 |
30.7 |
35.9 |
33.5 |
38.5 |
46.9 |
51.8 |
||
Investments & other |
1.1 |
1.1 |
1.7 |
0.8 |
1.9 |
2.9 |
3.2 |
3.2 |
3.2 |
||
Current Assets |
|
|
53.5 |
65.7 |
83.5 |
105.1 |
96.0 |
107.0 |
121.7 |
132.5 |
134.2 |
Stocks |
28.7 |
32.2 |
37.8 |
56.5 |
44.1 |
54.2 |
74.0 |
76.8 |
73.7 |
||
Debtors |
17.5 |
21.5 |
23.8 |
33.0 |
34.8 |
30.2 |
30.8 |
37.8 |
44.8 |
||
Cash & cash equivalents |
4.9 |
9.2 |
15.0 |
11.5 |
11.2 |
13.9 |
9.0 |
10.0 |
7.7 |
||
Other |
2.4 |
2.8 |
6.9 |
4.1 |
5.9 |
8.7 |
7.9 |
7.9 |
7.9 |
||
Current Liabilities |
|
|
(19.8) |
(25.8) |
(25.1) |
(26.8) |
(30.4) |
(34.7) |
(49.0) |
(45.1) |
(42.1) |
Creditors |
(14.6) |
(16.1) |
(21.4) |
(22.4) |
(25.2) |
(28.3) |
(44.7) |
(40.8) |
(37.8) |
||
Tax and social security |
(1.2) |
(3.3) |
(3.5) |
(4.2) |
(3.1) |
(4.9) |
(2.5) |
(2.5) |
(2.5) |
||
Short term borrowings |
(4.0) |
(5.5) |
0.0 |
0.0 |
(1.6) |
(1.5) |
(1.8) |
(1.8) |
(1.8) |
||
Other |
0.0 |
(0.9) |
(0.2) |
(0.2) |
(0.5) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(10.0) |
(6.2) |
(29.6) |
(70.1) |
(64.1) |
(43.0) |
(50.8) |
(133.4) |
(123.2) |
Long term borrowings |
(4.6) |
0.0 |
(24.0) |
(63.5) |
(57.3) |
(35.2) |
(39.9) |
(122.5) |
(112.3) |
||
Other long term liabilities |
(5.4) |
(6.2) |
(5.6) |
(6.6) |
(6.8) |
(7.8) |
(10.9) |
(10.9) |
(10.9) |
||
Net Assets |
|
|
89.1 |
106.9 |
116.9 |
137.4 |
138.9 |
164.5 |
172.4 |
151.0 |
173.6 |
Minority interests |
(0.8) |
(0.8) |
(0.9) |
(1.0) |
(0.7) |
(0.7) |
(0.9) |
(1.0) |
(1.0) |
||
Shareholders' equity |
|
|
88.3 |
106.1 |
116.0 |
136.4 |
138.2 |
163.8 |
171.5 |
150.1 |
172.6 |
CASH FLOW |
|||||||||||
Op Cash Flow before WC and tax |
29.7 |
33.0 |
41.7 |
49.2 |
44.5 |
56.8 |
55.5 |
61.5 |
70.2 |
||
Working capital |
(4.6) |
(6.1) |
0.4 |
(21.6) |
10.6 |
(6.2) |
(4.0) |
(13.6) |
(7.1) |
||
Exceptional & other |
0.6 |
5.1 |
(6.3) |
3.2 |
(4.4) |
(1.7) |
(10.9) |
(47.2) |
0.0 |
||
Tax |
(4.7) |
(4.1) |
(6.1) |
(4.1) |
(4.5) |
(3.3) |
(4.2) |
0.6 |
(9.7) |
||
Net operating cash flow |
|
|
21.0 |
27.9 |
29.7 |
26.7 |
46.2 |
45.6 |
36.4 |
1.3 |
53.4 |
Capex |
(5.4) |
(6.8) |
(10.1) |
(15.0) |
(16.3) |
(14.9) |
(21.9) |
(28.0) |
(23.0) |
||
Acquisitions/disposals |
(8.3) |
0.1 |
(18.3) |
(35.4) |
0.0 |
(0.5) |
0.0 |
(32.8) |
0.0 |
||
Net interest |
(0.1) |
(0.2) |
(0.2) |
(1.5) |
(2.7) |
(1.3) |
(0.9) |
(2.0) |
(2.0) |
||
Equity financing |
0.0 |
0.2 |
(0.2) |
0.6 |
0.5 |
3.5 |
0.6 |
0.0 |
0.0 |
||
Dividends |
(12.2) |
(13.1) |
(14.2) |
(15.6) |
(17.2) |
(7.3) |
(18.4) |
(18.6) |
(19.0) |
||
Other |
0.2 |
0.0 |
0.0 |
0.0 |
(1.5) |
(1.7) |
(1.7) |
(1.7) |
(1.7) |
||
Net Cash Flow |
(4.8) |
8.1 |
(13.3) |
(40.2) |
9.0 |
23.4 |
(5.9) |
(81.8) |
7.6 |
||
Opening net debt/(cash) |
|
|
(1.3) |
3.7 |
(3.7) |
9.0 |
52.0 |
41.3 |
17.9 |
24.6 |
106.4 |
FX |
(0.2) |
(0.5) |
0.6 |
(2.7) |
1.7 |
0.0 |
(0.8) |
0.0 |
0.0 |
||
Other non-cash movements |
0.1 |
(0.2) |
0.0 |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
3.7 |
(3.7) |
9.0 |
52.0 |
41.3 |
17.9 |
24.6 |
106.4 |
98.7 |
Source: XP Power, Edison Investment Research
|
|
Research: Metals & Mining
Excluding an (exceptional) warrant charge, a superprofit tax and deferred tax, post-tax profits in Q421 were within US$0.6m (or 1.3%) of our prior quarterly net profit forecast (US$44.2m) and resulted in a maiden dividend of C$0.03/share for the year. Contained tin production and sales guidance for FY22 remains unchanged at 12,000 tonnes, which is in line with the company’s operational performance in Q122. In addition, Alphamin has also announced the start of development of the Mpama South project.
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