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GBP501m
Research: TMT
After a strong H216, XP saw further acceleration in order intake in Q117, with growth of 55% y-o-y and 27% q-o-q. Q117 revenues grew 23% on a constant currency basis. Revenue and bookings strength combined with sterling weakness lead us to upgrade our forecasts. We lift our revenue forecasts by 4% and normalised EPS forecasts by 2% for FY17 and FY18.
XP Power |
Firing on all cylinders |
Q117 trading update |
Tech hardware & equipment |
11 April 2017 |
Share price performance
Business description
Next event
Analysts
XP Power is a research client of Edison Investment Research Limited |
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After a strong H216, XP saw further acceleration in order intake in Q117, with growth of 55% y-o-y and 27% q-o-q. Q117 revenues grew 23% on a constant currency basis. Revenue and bookings strength combined with sterling weakness lead us to upgrade our forecasts. We lift our revenue forecasts by 4% and normalised EPS forecasts by 2% for FY17 and FY18.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
109.7 |
25.7 |
104.3 |
66.0 |
21.1 |
3.0 |
12/16 |
129.8 |
28.6 |
115.3 |
71.0 |
19.1 |
3.2 |
12/17e |
150.0 |
31.5 |
123.6 |
75.0 |
17.8 |
3.4 |
12/18e |
156.9 |
33.5 |
131.3 |
79.0 |
16.8 |
3.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong demand across the board
XP generated revenues of £39.6m in Q117, +40% y-o-y, and +23% on a constant currency basis. This follows y-o-y revenue and bookings growth of 33% and 24% respectively in Q416. Bookings of £47.0m in Q117 were up 55% y-o-y (36% constant currency) and 27% q-o-q, as customers pulled in orders from future quarters. The company is seeing strong demand across all sectors and geographies, with particular strength from the semiconductor sector. XP ended Q117 with net cash of £8.8m, up from £3.7m at the end of FY16. A dividend of 15p was announced for Q1, in line with our forecast, and will be paid on 10 July to shareholders as at 16 June.
Estimates revised up
Taking into account the strong Q1 revenues and bookings and the fact that the US$/£ rate has remained below an average of 1.25 for the quarter, we have revised up our FY17 and FY18 revenue forecasts by 4.4% and 4.5% respectively. We raise our underlying revenue growth assumption from 4.2% to 6.3% in FY17 and reduce our US$/£ rate assumption for FY17 and FY18 from 1.30 to 1.27. As a large proportion of costs of goods and operating costs are US$-denominated, this has a much smaller impact at the operating profit level. We raise our normalised EPS forecasts by 1.8% in FY17 and 2.3% in FY18. It is difficult to forecast how sustainable the current order intake level is – we have conservatively assumed that demand slows in H217. If current momentum can be maintained into H2, then further upgrades are possible.
Valuation: Discount narrowing
The share price has gained 36% over the last year, and is up 14% since it announced FY16 results in March. The stock now trades on a P/E of 17.8x FY17e and 16.8x FY18e normalised EPS, with a forecast dividend yield of 3.4% in FY17. The company trades at a discount to peers, despite its better profitability; evidence of accelerating earnings growth could reduce this discount. Strong forecast cash generation should enable the company to invest in further growth, either through internal product development or bolt-on acquisitions, while maintaining its high level of profitability.
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 |
150.0 |
156.9 |
Cost of Sales |
(49.0) |
(51.5) |
(51.0) |
(55.1) |
(67.8) |
(78.9) |
(82.4) |
||
Gross Profit |
44.9 |
49.6 |
50.1 |
54.6 |
62.0 |
71.1 |
74.4 |
||
EBITDA |
|
|
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
36.9 |
39.3 |
Normalised operating profit |
|
|
21.0 |
23.3 |
24.5 |
25.9 |
28.8 |
31.8 |
33.8 |
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) |
0.0 |
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 |
31.4 |
33.4 |
||
Net Interest |
(0.8) |
(0.4) |
(0.2) |
(0.2) |
(0.2) |
(0.3) |
(0.3) |
||
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 |
31.5 |
33.5 |
Profit Before Tax (reported) |
|
|
20.2 |
22.9 |
24.3 |
25.4 |
27.8 |
31.1 |
33.1 |
Reported tax |
(4.5) |
(4.5) |
(4.8) |
(5.5) |
(6.3) |
(7.5) |
(7.9) |
||
Profit After Tax (norm) |
15.7 |
18.4 |
19.5 |
20.2 |
22.3 |
24.0 |
25.4 |
||
Profit After Tax (reported) |
15.7 |
18.4 |
19.5 |
19.9 |
21.5 |
23.7 |
25.1 |
||
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 |
23.7 |
25.2 |
||
Net income (reported) |
15.5 |
18.2 |
19.4 |
19.7 |
21.3 |
23.4 |
24.9 |
||
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 |
124.92 |
132.67 |
EPS - diluted normalised (p) |
|
|
81.35 |
95.05 |
101.07 |
104.32 |
115.33 |
123.62 |
131.29 |
EPS - basic reported (p) |
|
|
81.67 |
95.84 |
102.12 |
103.70 |
112.02 |
123.34 |
131.09 |
Dividend (p) |
50 |
55 |
61 |
66 |
71 |
75 |
79 |
||
Revenue growth (%) |
(9.4) |
7.7 |
0.0 |
8.5 |
18.3 |
15.5 |
4.6 |
||
Gross Margin (%) |
47.8 |
49.1 |
49.6 |
49.8 |
47.8 |
47.4 |
47.4 |
||
EBITDA Margin (%) |
24.8 |
25.7 |
27.3 |
27.0 |
25.4 |
24.6 |
25.0 |
||
Normalised Operating Margin |
22.4 |
23.0 |
24.2 |
23.6 |
22.2 |
21.2 |
21.5 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
52.8 |
53.3 |
56.1 |
65.4 |
73.2 |
76.9 |
80.7 |
Intangible Assets |
38.1 |
39.1 |
40.5 |
48.2 |
53.0 |
54.2 |
55.2 |
||
Tangible Assets |
13.2 |
12.7 |
14.4 |
16.1 |
19.1 |
21.6 |
24.4 |
||
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 |
68.5 |
75.8 |
Stocks |
19.8 |
20.4 |
25.2 |
28.7 |
32.2 |
37.4 |
39.1 |
||
Debtors |
14.2 |
15.4 |
16.0 |
17.5 |
21.5 |
24.2 |
25.8 |
||
Cash & cash equivalents |
4.1 |
5.0 |
3.8 |
4.9 |
9.2 |
4.0 |
8.1 |
||
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) |
(22.6) |
(23.4) |
Creditors |
(11.1) |
(12.7) |
(14.4) |
(14.6) |
(16.0) |
(18.5) |
(19.3) |
||
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) |
(0.4) |
(0.4) |
||
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 |
116.5 |
126.9 |
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 |
115.5 |
125.8 |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
36.9 |
39.3 |
||
Working capital |
4.2 |
(0.3) |
(4.1) |
(4.6) |
(6.2) |
(5.4) |
(2.4) |
||
Exceptional & other |
0.4 |
(0.5) |
1.9 |
0.6 |
5.2 |
0.0 |
0.0 |
||
Tax |
(4.3) |
(5.0) |
(3.6) |
(4.7) |
(4.1) |
(7.5) |
(7.9) |
||
Net operating cash flow |
|
|
23.6 |
20.2 |
21.8 |
21.0 |
27.9 |
24.0 |
28.9 |
Capex |
(4.7) |
(3.2) |
(5.8) |
(5.4) |
(6.8) |
(9.2) |
(9.7) |
||
Acquisitions/disposals |
(1.6) |
0.1 |
0.1 |
(8.3) |
0.1 |
(0.5) |
0.0 |
||
Net interest |
(0.5) |
(0.3) |
(0.1) |
(0.1) |
(0.2) |
(0.3) |
(0.3) |
||
Equity financing |
(0.5) |
0.1 |
(0.2) |
0.0 |
0.2 |
0.0 |
0.0 |
||
Dividends |
(9.1) |
(10.1) |
(11.0) |
(12.2) |
(13.1) |
(14.1) |
(14.8) |
||
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 |
(0.1) |
4.1 |
||
Opening net debt/(cash) |
|
|
18.6 |
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
(3.6) |
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) |
(3.6) |
(7.7) |
Source: XP Power, Edison Investment Research
|
|
Research: TMT
Mensch und Maschine Software provides CAD/CAM software to the industrial and construction sectors to support the digitisation of their design, manufacture and build processes. Group revenues have grown at a CAGR of 8.8% from 2012 to 2016, while EBITDA has grown at a CAGR of 101% over the same period. Focused on driving sales of its proprietary CAM software internationally and growing its share of Autodesk CAD software sales in Europe, the company expects continued growth in margins, EPS and dividend payouts.