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GBP17.86
▲ 86.00 (5.06%)
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GBP501m
Research: TMT
Hot on the heels of its recent US acquisition, XP Power’s trading update confirms that strong trading continued into Q3. Q3 revenues were 35% higher than a year ago, with nine-month revenues up 34% y-o-y and 21% in constant currency. We revise up our revenue forecasts to reflect much stronger than expected trading in Q3, which results in normalised EPS upgrades of 5.7% in FY17e and 7.1% in FY18e.
XP Power |
Demand remains strong; earnings upgraded |
Q3 trading update |
Tech hardware & equipment |
9 October 2017 |
Share price performance
Business description
Next events
Analysts
XP Power is a research client of Edison Investment Research Limited |
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Hot on the heels of its recent US acquisition, XP Power’s trading update confirms that strong trading continued into Q3. Q3 revenues were 35% higher than a year ago, with nine-month revenues up 34% y-o-y and 21% in constant currency. We revise up our revenue forecasts to reflect much stronger than expected trading in Q3, which results in normalised EPS upgrades of 5.7% in FY17e and 7.1% in FY18e.
Year end |
Revenue (£m) |
PBT* |
Dil. EPS* |
DPS |
P/E |
Yield |
12/15 |
109.7 |
25.7 |
104.3 |
66.0 |
27.5 |
2.3 |
12/16 |
129.8 |
28.6 |
115.3 |
71.0 |
24.9 |
2.5 |
12/17e |
166.7 |
35.5 |
142.9 |
76.0 |
20.1 |
2.6 |
12/18e |
179.1 |
38.4 |
147.9 |
79.0 |
19.4 |
2.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Further acceleration in revenues
XP generated revenues of £43.7m in Q317, +35% y-o-y and +8% q-o-q, and ahead of our £37.4m forecast. For the nine months to 30 September, revenues grew 34% (21% in constant currency). Q3 order intake also remained strong at £44.1m, +26% y-o-y and -5% q-o-q, to result in a book-to-bill of 1.01x for Q3. For the nine months, orders grew 44% y-o-y (+30% in constant currency). The company saw particularly strong demand in North America, from semiconductor equipment manufacturers enjoying this year’s upturn in chip demand and healthcare companies placing orders for new programmes.
Earnings upgrades for FY17 and FY18
After paying $23m/£17m for Comdel at the end of the quarter, the company ended Q317 with a net debt position of £10.8m (vs net cash of £8.0m at the end of H117). The company announced an 18p dividend for Q3 (1p ahead of our forecast) to be paid on 11 January to shareholders as at 15 December. Management anticipates that FY17 results will be ahead of expectations outlined at H117 results. We have revised our forecasts to reflect the stronger than expected revenues and bookings in Q317. We raise our revenue forecasts by 4.7% in FY17 (28.5% growth y-o-y) and 5.3% in FY18 (7.4% growth). This results in an increase in our normalised EPS forecasts of 5.7% for FY17 and 7.1% for FY18.
Valuation: Reflects earnings momentum
The stock is up 62% year to date and 17% in the last three months, reflecting multiple earnings upgrades over the course of the year. On our revised forecasts, XP is trading on 19.4x FY18e EPS. This is in line with its UK electronics peer group and at a small premium versus international power supply peers. Cross-selling and a reduction in manufacturing costs for Comdel have the potential to provide upside to our forecasts.
Exhibit 1: Financial summary
£'m |
2012 |
2013 |
2014 |
2015 |
2016 |
2017e |
2018e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||||
Revenue |
|
|
93.9 |
101.1 |
101.1 |
109.7 |
129.8 |
166.7 |
179.1 |
Cost of Sales |
(49.0) |
(51.5) |
(51.0) |
(55.1) |
(67.8) |
(89.0) |
(97.2) |
||
Gross Profit |
44.9 |
49.6 |
50.1 |
54.6 |
62.0 |
77.8 |
81.9 |
||
EBITDA |
|
|
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.0 |
44.7 |
Normalised operating profit |
|
|
21.0 |
23.3 |
24.5 |
25.9 |
28.8 |
35.9 |
39.0 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
(0.4) |
(0.4) |
(0.4) |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
(0.3) |
(0.4) |
(2.8) |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
21.0 |
23.3 |
24.5 |
25.6 |
28.0 |
32.7 |
38.6 |
||
Net Interest |
(0.8) |
(0.4) |
(0.2) |
(0.2) |
(0.2) |
(0.4) |
(0.6) |
||
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) |
|
|
20.2 |
22.9 |
24.3 |
25.7 |
28.6 |
35.5 |
38.4 |
Profit Before Tax (reported) |
|
|
20.2 |
22.9 |
24.3 |
25.4 |
27.8 |
32.3 |
38.0 |
Reported tax |
(4.5) |
(4.5) |
(4.8) |
(5.5) |
(6.3) |
(7.8) |
(9.7) |
||
Profit After Tax (norm) |
15.7 |
18.4 |
19.5 |
20.2 |
22.3 |
27.7 |
28.6 |
||
Profit After Tax (reported) |
15.7 |
18.4 |
19.5 |
19.9 |
21.5 |
24.6 |
28.3 |
||
Minority interests |
(0.2) |
(0.2) |
(0.1) |
(0.2) |
(0.2) |
(0.3) |
(0.3) |
||
Discontinued operations |
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 |
27.4 |
28.4 |
||
Net income (reported) |
15.5 |
18.2 |
19.4 |
19.7 |
21.3 |
24.3 |
28.1 |
||
Basic average number of shares outstanding (m) |
19 |
19 |
19 |
19 |
19 |
19 |
19 |
||
EPS - basic normalised (p) |
|
|
81.67 |
95.84 |
102.12 |
105.28 |
116.22 |
144.38 |
149.41 |
EPS - diluted normalised (p) |
|
|
81.35 |
95.05 |
101.07 |
104.32 |
115.33 |
142.88 |
147.86 |
EPS - basic reported (p) |
|
|
81.67 |
95.84 |
102.12 |
103.70 |
112.02 |
128.05 |
147.83 |
Dividend (p) |
50 |
55 |
61 |
66 |
71 |
76 |
79 |
||
Revenue growth (%) |
(9.4) |
7.7 |
0.0 |
8.5 |
18.3 |
28.5 |
7.4 |
||
Gross Margin (%) |
47.8 |
49.1 |
49.6 |
49.8 |
47.8 |
46.6 |
45.7 |
||
EBITDA Margin (%) |
24.8 |
25.7 |
27.3 |
27.0 |
25.4 |
24.6 |
24.9 |
||
Normalised Operating Margin |
22.4 |
23.0 |
24.2 |
23.6 |
22.2 |
21.5 |
21.7 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
52.8 |
53.3 |
56.1 |
65.4 |
73.2 |
93.8 |
97.8 |
Intangible Assets |
38.1 |
39.1 |
40.5 |
48.2 |
53.0 |
71.2 |
72.2 |
||
Tangible Assets |
13.2 |
12.7 |
14.4 |
16.1 |
19.1 |
21.5 |
24.5 |
||
Investments & other |
1.5 |
1.5 |
1.2 |
1.1 |
1.1 |
1.1 |
1.1 |
||
Current Assets |
|
|
39.3 |
42.2 |
47.0 |
53.5 |
65.7 |
75.5 |
84.9 |
Stocks |
19.8 |
20.4 |
25.2 |
28.7 |
32.2 |
41.4 |
45.3 |
||
Debtors |
14.2 |
15.4 |
16.0 |
17.5 |
21.5 |
26.5 |
28.5 |
||
Cash & cash equivalents |
4.1 |
5.0 |
3.8 |
4.9 |
9.2 |
4.8 |
8.3 |
||
Other |
1.2 |
1.4 |
2.0 |
2.4 |
2.8 |
2.8 |
2.8 |
||
Current Liabilities |
|
|
(20.2) |
(22.4) |
(18.6) |
(19.8) |
(25.7) |
(45.2) |
(45.0) |
Creditors |
(11.1) |
(12.7) |
(14.4) |
(14.6) |
(16.0) |
(24.1) |
(23.9) |
||
Tax and social security |
(1.6) |
(1.1) |
(1.7) |
(1.2) |
(3.3) |
(3.3) |
(3.3) |
||
Short term borrowings |
(7.3) |
(8.5) |
(2.5) |
(4.0) |
(5.5) |
(17.4) |
(17.4) |
||
Other |
(0.2) |
(0.1) |
0.0 |
0.0 |
(0.9) |
(0.4) |
(0.4) |
||
Long Term Liabilities |
|
|
(10.6) |
(3.7) |
(4.2) |
(10.0) |
(6.2) |
(6.2) |
(6.2) |
Long term borrowings |
(7.4) |
0.0 |
0.0 |
(4.6) |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(3.2) |
(3.7) |
(4.2) |
(5.4) |
(6.2) |
(6.2) |
(6.2) |
||
Net Assets |
|
|
61.3 |
69.4 |
80.3 |
89.1 |
107.0 |
117.9 |
131.4 |
Minority interests |
(0.2) |
(0.2) |
(0.1) |
(0.8) |
(0.9) |
(1.0) |
(1.1) |
||
Shareholders' equity |
|
|
61.1 |
69.2 |
80.2 |
88.3 |
106.1 |
116.9 |
130.3 |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.0 |
44.7 |
||
Working capital |
4.2 |
(0.3) |
(4.1) |
(4.6) |
(6.2) |
(6.1) |
(6.0) |
||
Exceptional & other |
0.4 |
(0.5) |
1.9 |
0.6 |
5.2 |
(2.8) |
0.0 |
||
Tax |
(4.3) |
(5.0) |
(3.6) |
(4.7) |
(4.1) |
(7.8) |
(9.7) |
||
Net operating cash flow |
|
|
23.6 |
20.2 |
21.8 |
21.0 |
27.9 |
24.3 |
29.0 |
Capex |
(4.7) |
(3.2) |
(5.8) |
(5.4) |
(6.8) |
(9.2) |
(10.1) |
||
Acquisitions/disposals |
(1.6) |
0.1 |
0.1 |
(8.3) |
0.1 |
(17.5) |
0.0 |
||
Net interest |
(0.5) |
(0.3) |
(0.1) |
(0.1) |
(0.2) |
(0.4) |
(0.6) |
||
Equity financing |
(0.5) |
0.1 |
(0.2) |
0.0 |
0.2 |
0.5 |
0.0 |
||
Dividends |
(9.1) |
(10.1) |
(11.0) |
(12.2) |
(13.1) |
(14.1) |
(15.0) |
||
Other |
0.5 |
0.2 |
0.1 |
0.2 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
7.7 |
7.0 |
4.9 |
(4.8) |
8.1 |
(16.3) |
3.3 |
||
Opening net debt/(cash) |
|
|
18.6 |
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
12.6 |
FX |
0.3 |
0.1 |
(0.1) |
(0.2) |
(0.5) |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
0.1 |
(0.2) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
12.6 |
9.3 |
Source: XP Power, Edison Investment Research
|
|
Research: TMT
Mondo’s licensing activities advanced significantly in the first half of the year, supporting a 67% increase in net profit. With Mondo’s developed pipeline, we are confident regarding delivery of the group’s FY17 budget and we increase our FY17e net profit by 5%, broadly in line with management’s raised guidance. We believe Mondo’s c 30% valuation discount to peers is unwarranted given the improving record of delivering to plan.