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▲ 86.00 (5.06%)
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Research: TMT
With weaker end demand than originally expected in Q323, XP Power’s trading update confirmed a lower outlook for FY23 operating profit and a consequent rise in net debt. To mitigate the risk of hitting debt covenants, the company has initiated a series of cost and cash saving measures, renegotiated its debt covenants and undertaken a fundraise. With revised debt covenants in place and reduced gearing, we believe XP is now well positioned for growth as end market conditions improve.
XP Power |
Fully funded for medium-term growth |
Q323 trading update |
Electronic and electrical equipment |
9 November 2023 |
Share price performance
Business description
Next events
Analysts
XP Power is a research client of Edison Investment Research Limited |
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With weaker end demand than originally expected in Q323, XP Power’s trading update confirmed a lower outlook for FY23 operating profit and a consequent rise in net debt. To mitigate the risk of hitting debt covenants, the company has initiated a series of cost and cash saving measures, renegotiated its debt covenants and undertaken a fundraise. With revised debt covenants in place and reduced gearing, we believe XP is now wellpositioned for growth as end market conditions improve.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
240.3 |
43.8 |
176.3 |
94 |
7.3 |
7.4% |
12/22 |
290.4 |
38.0 |
160.1 |
94 |
8.0 |
7.4% |
12/23e |
309.8 |
28.3 |
111.2 |
18 |
11.5 |
1.4% |
12/24e |
307.5 |
28.2 |
94.1 |
0 |
13.6 |
0.0% |
Note: *PBT and EPS (diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Taking measures to cope with weaker end markets
XP’s Q323 update confirmed that despite its strong backlog, trading during Q3 was weaker than expected and is likely to continue this way into Q4, driving a lower outlook for FY23 operating profit. As a result of this and other factors, net debt was expected to rise to be at or above covenant limits in the near-term. Since then, the company has initiated a series of cost and cash preservation measures, renegotiated the covenants on its revolving credit facility and raised net proceeds of £44m from the issue of 3.95m shares at 1,150p per share. Overall, these measures should bring gearing to within XP’s target range by the end of FY24.
Stronger balance sheet supports future growth
We have reduced our FY23–25 forecasts to reflect lower shipments in H223 and a slower pickup in orders through FY24. We have also factored in the cost reduction and working capital measures, the cancelled dividend, the pause in the investment in Malaysia and the recent fundraise. We reduce our normalised EPS forecasts by 26% in FY23, 46% in FY24 and 42% in FY25, with gearing of 2.0x by end-FY24 and 1.6x by end-FY25. We forecast the dividend resuming in FY25. Despite the multiple factors that pushed debt up to higher-than-expected levels, we believe that XP’s underlying business remains strong. With the new funding in place, it is well positioned to capitalise on growth opportunities when end demand recovers.
Valuation: Bookings growth the next trigger
The share price has regained some ground since its 67% decline in early October and is now down by 46% since the Q3 trading update. On an FY24 P/E basis, XP is trading at a c 30% discount to global power solution companies and broadly in line with UK electronics companies, with EBITDA and EBIT margins at the upper end of both peer groups. Our 10-year discounted cash flow (DCF) with conservative growth assumptions values the company at 1,987p, 56% above the current share price. We believe a return to growth in order intake, improvements in working capital and final resolution of the Comet litigation would be key drivers of the share price from here.
Q323 trading update
On 2 October, XP Power confirmed that trading in Q323 was lower than expected, with weaker endmarket demand resulting in some customers deferring shipments to FY24. Economic uncertainty in China has also reduced demand in that market. Management expects these conditions to continue for the rest of the year, with FY23 outlook now lower than its prior expectation and operating profit likely to be broadly similar to FY22.
Q323 revenue was £75.1m, down by 5% y-o-y and down by 2% y-o-y in constant currency. Operating margins remain in the double-digits and the company noted on 27 October that operating profit for Q323 was slightly ahead of its prior expectation due to a better outturn in September. Book-to-bill for Q323 was c 0.6x, which implies order intake of c £45m, 17% lower q-o-q and 55% lower y-o-y. Backlog at the end of Q323 stood at c £225m. The company noted that while it has not yet seen a recovery in orders from its semiconductor manufacturing equipment customers, their outlook for 2024 and 2025 is encouraging, although the timing of the overall economic recovery remains uncertain.
Net debt at the end of Q323 was £163m, up from £148.4m at the end of H123. This includes a £6m foreign exchange impact as the pound has strengthened against the dollar (end-H123: US$1.27/£, end-Q323 US$1.22/£). Without taking any action, XP expected net debt to rise further by the end of the year due to lower-than-previously-expected profitability, a slower unwind of working capital and higher-than-planned capex relating to the relocation of the Californian site. While the group is currently in compliance with its banking covenants, it expected net debt/adjusted EBITDA to be close to or above current covenant limits in the near-term (covenant limit was 3x as at end FY23). As a result, XP has taken the following action:
■
Cost reduction measures: Started a significant and wide-ranging operating cost reduction programme, including headcount reductions and restrictions on non-discretionary spend. In FY24, this is expected to reduce costs by £8–10m on an annualised basis.
■
Working capital management: Implemented an inventory reduction plan for the period FY23–25, to reduce inventory by £10–20m. Surplus stock is expected to progressively unwind as supply chains normalise. The company is also standardising supplier payment terms.
■
Capex reduced to maintenance levels: Investment in the new Malaysian facility has been suspended for the time being.
■
Dividend suspension: On 6 October, the dividend of 19p originally announced for Q223 was cancelled, saving £3.75m, and no further dividends will be paid for FY23.
■
Fundraise: On 6 November, the company announced a placing and retail offer at 1,150p per share (11% premium to the closing price on 6 November and a 6% premium to the closing price on 3 November). On 7 November, the company confirmed it had placed 3,816,524 shares raising gross proceeds of £43.9m and 130,434 shares had been subscribed for in the retail offer raising gross proceeds of £1.5m. Total net proceeds were £44.2m. The new shares in total make up 19.99% of issued share capital prior to the fundraise, and 16.67% including the new shares.
■
Amendments to the group’s borrowing facility: XP has agreed revised banking covenants for its $255m revolving credit facility. The net debt/adjusted EBITDA covenant has increased to 3.5x until 31 December 2024 returning to 3.0x thereafter. Adjusted EBITDA/net finance expense has reduced to 3.0x until 30 September 2025, returning to 4.0x thereafter.
The funds raised will be used to reduce net debt, improve liquidity, refinance capital investments and continue to invest in key areas including R&D. In accordance with the company’s existing shareholder authorities, proceeds above 10% of existing share capital (roughly half the proceeds) will be applied to partially refinance the capital investments made to relocate XP’s two key US sites.
As a result of these actions, XP expects its leverage to reduce to the upper end of its 1–2x target range by the end of FY24, reducing further in FY25.
Changes to forecasts
We have revised our forecasts to reflect:
■
Bookings: We have reduced our forecasts for order intake in Q423 (see Exhibit 1 for assumptions) and assume a slower pickup in FY24.
■
Revenue: We assume that Q423 revenue is slightly lower than in Q423, resulting in a cut to our FY23 revenue forecast of 3%. For FY24, we assume that revenue is slightly lower before returning to growth of 4% in FY25.
■
Gross margins: We assume that lower utilisation of manufacturing facilities will prevent gross margins from returning to previous levels during our forecast period.
■
Normalised operating profit: We factor in reduced operating profit in FY23–25 reflecting lower-than-expected revenue in H223, FY24 and FY25, partially offset by the recently implemented cost-cutting measures.
■
Dividend: We have cut the FY23 dividend from 94p to 18p, reflecting the suspension of the dividend from Q223. We assume no dividend in FY24 and in FY25 we have assumed a payout ratio of c 50% (based on normalised EPS).
■
Net debt: With the benefit of the capital raise and the other cost and cash saving measures, we reduce our net debt forecasts for FY23–25. This results in net debt/adjusted EBITDA of 2.6x at the end of FY23, 2.0x at the end of FY24 and 1.6x at the end of FY25.
|
Exhibit 1: Quarterly bookings, revenue and backlog progression |
|
|
Source: XP Power, Edison Investment Research |
Exhibit 2: Changes to forecasts
£m |
FY23e |
FY24e |
FY25e |
|||||||||
Old |
New |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
|
Revenues |
320.1 |
309.8 |
(3.2%) |
6.7% |
326.6 |
307.5 |
(5.8%) |
(0.8%) |
333.7 |
319.2 |
(4.3%) |
3.8% |
Gross profit |
135.9 |
129.4 |
(4.8%) |
7.3% |
142.7 |
128.4 |
(10.0%) |
(0.7%) |
150.1 |
133.9 |
(10.8%) |
4.3% |
Gross margin |
42.4% |
41.8% |
(0.7%) |
0.2% |
43.7% |
41.8% |
(1.9%) |
0.0% |
45.0% |
42.0% |
(3.0%) |
0.2% |
EBITDA |
65.3 |
58.3 |
(10.8%) |
3.4% |
71.8 |
59.7 |
(16.8%) |
2.5% |
74.6 |
63.9 |
(14.3%) |
7.0% |
EBITDA margin |
20.4% |
18.8% |
(1.6%) |
(0.6%) |
22.0% |
19.4% |
(2.6%) |
0.6% |
22.4% |
20.0% |
(2.3%) |
0.6% |
Normalised operating profit |
49.3 |
42.3 |
(14.3%) |
(1.4%) |
54.3 |
42.2 |
(22.2%) |
(0.1%) |
56.4 |
45.7 |
(18.9%) |
8.2% |
Normalised operating margin |
15.4% |
13.7% |
(1.8%) |
(1.1%) |
16.6% |
13.7% |
(2.9%) |
0.1% |
16.9% |
14.3% |
(2.6%) |
0.6% |
Reported operating profit |
40.3 |
31.8 |
(21.2%) |
N/A |
50.8 |
38.7 |
(23.8%) |
21.8% |
52.9 |
42.2 |
(20.2%) |
9.0% |
Reported operating margin |
12.6% |
10.3% |
(2.3%) |
18.6% |
15.6% |
12.6% |
(3.0%) |
2.3% |
15.8% |
13.2% |
(2.6%) |
0.6% |
Normalised PBT |
36.8 |
28.3 |
(23.2%) |
(25.5%) |
43.3 |
28.2 |
(34.8%) |
(0.2%) |
46.4 |
32.7 |
(29.5%) |
15.9% |
Reported PBT |
26.2 |
16.2 |
(38.3%) |
N/A |
39.8 |
24.7 |
(37.9%) |
52.7% |
42.9 |
29.2 |
(31.9%) |
18.1% |
Normalised net income |
29.6 |
22.7 |
(23.4%) |
(28.0%) |
34.4 |
22.3 |
(35.1%) |
(1.5%) |
36.9 |
25.9 |
(29.7%) |
16.1% |
Reported net income |
21.0 |
12.9 |
(38.7%) |
N/A |
31.6 |
19.5 |
(38.2%) |
51.8% |
34.1 |
23.1 |
(32.1%) |
18.3% |
Normalised basic EPS (p) |
150.7 |
111.6 |
(25.9%) |
(30.5%) |
175.2 |
94.3 |
(46.2%) |
(15.5%) |
187.7 |
109.5 |
(41.7%) |
16.1% |
Normalised diluted EPS (p) |
150.2 |
111.2 |
(25.9%) |
(30.5%) |
174.7 |
94.1 |
(46.1%) |
(15.4%) |
187.1 |
109.2 |
(41.6%) |
16.1% |
Reported basic EPS (p) |
107.0 |
63.4 |
(40.8%) |
N/A |
161.0 |
82.5 |
(48.7%) |
30.2% |
173.4 |
97.7 |
(43.7%) |
18.3% |
Dividend per share (p) |
94.0 |
18.0 |
(80.9%) |
(80.9%) |
97.0 |
0.0 |
(100%) |
(100%) |
101.0 |
58.0 |
(42.6%) |
N/A |
Net debt/(cash) |
152.0 |
142.2 |
(6.5%) |
(5.8%) |
139.6 |
114.6 |
(17.9%) |
(19.4%) |
123.7 |
96.4 |
(22.1%) |
(15.9%) |
Orders |
232.7 |
206.5 |
(11.3%) |
(43.1%) |
265.3 |
217.8 |
(17.9%) |
5.4% |
316.6 |
303.8 |
(4.0%) |
39.5% |
Net debt/EBITDA (x) |
2.4 |
2.6 |
1.9 |
2.0 |
1.7 |
1.6 |
||||||
Source: Edison Investment Research
Valuation
Using a weighted average cost of capital (WACC) of 9.3% and long-term growth of 3%, we have performed a 10-year DCF analysis, which assumes a conservative revenue growth rate of 5% from FY26, EBITDA margins expanding to 26% and capex/sales of 7% from FY26–32. This results in a valuation of 1,987p per share, 56% above the current share price. The table below shows the sensitivity of this analysis to changes in WACC and the long-term growth rate.
Exhibit 3: Sensitivity of per share valuation to WACC and long-term growth rate
Terminal growth rate |
|||||||
1.00% |
2.00% |
3.00% |
4.00% |
5.00% |
|||
WACC |
12.00% |
1009.1 |
1084.0 |
1175.5 |
1289.9 |
1437.0 |
|
11.50% |
1094.0 |
1179.9 |
1286.1 |
1420.6 |
1596.5 |
||
11.00% |
1187.7 |
1286.9 |
1410.9 |
1570.4 |
1783.0 |
||
10.50% |
1291.8 |
1406.9 |
1552.8 |
1743.6 |
2003.7 |
||
10.00% |
1407.9 |
1542.5 |
1715.4 |
1946.1 |
2268.9 |
||
9.50% |
1538.3 |
1696.6 |
1903.6 |
2185.9 |
2593.6 |
||
9.00% |
1685.5 |
1873.3 |
2123.7 |
2474.3 |
3000.1 |
||
8.50% |
1853.1 |
2078.0 |
2384.5 |
2827.4 |
3523.3 |
||
8.00% |
2045.4 |
2317.4 |
2698.3 |
3269.6 |
4221.7 |
||
7.50% |
2268.1 |
2601.3 |
3082.7 |
3839.0 |
5200.5 |
||
|
Source: Edison Investment Research |
|||||||
Exhibit 4: Financial summary
£m |
2018 |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
2025e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||||
Revenue |
|
|
195.1 |
199.9 |
233.3 |
240.3 |
290.4 |
309.8 |
307.5 |
319.2 |
Cost of Sales |
(102.8) |
(109.8) |
(123.2) |
(132.0) |
(169.8) |
(180.5) |
(179.0) |
(185.2) |
||
Gross Profit |
92.3 |
90.1 |
110.1 |
108.3 |
120.6 |
129.4 |
128.4 |
133.9 |
||
EBITDA |
|
|
49.2 |
44.5 |
56.8 |
55.5 |
56.4 |
58.3 |
59.7 |
63.9 |
Normalised operating profit |
|
|
42.9 |
35.0 |
46.0 |
45.1 |
42.9 |
42.3 |
42.2 |
45.7 |
Amortisation of acquired intangibles |
(2.8) |
(3.2) |
(3.2) |
(2.8) |
(4.1) |
(3.5) |
(3.5) |
(3.5) |
||
Exceptionals |
(0.8) |
(5.1) |
(5.4) |
(12.6) |
(62.9) |
(7.0) |
0.0 |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
39.3 |
26.7 |
37.4 |
29.7 |
(24.1) |
31.8 |
38.7 |
42.2 |
||
Net Interest |
(1.7) |
(2.7) |
(1.7) |
(1.3) |
(4.9) |
(14.0) |
(14.0) |
(13.0) |
||
Joint ventures & associates (post tax) |
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 |
(1.2) |
(1.6) |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
41.2 |
32.3 |
44.3 |
43.8 |
38.0 |
28.3 |
28.2 |
32.7 |
Profit Before Tax (reported) |
|
|
37.6 |
24.0 |
35.7 |
28.4 |
(30.2) |
16.2 |
24.7 |
29.2 |
Reported tax |
(7.2) |
(3.2) |
(4.0) |
(5.4) |
10.6 |
(3.1) |
(4.9) |
(5.8) |
||
Profit After Tax (norm) |
33.9 |
27.9 |
39.2 |
35.4 |
31.9 |
22.9 |
22.6 |
26.2 |
||
Profit After Tax (reported) |
30.4 |
20.8 |
31.7 |
23.0 |
(19.6) |
13.1 |
19.8 |
23.4 |
||
Minority interests |
(0.2) |
(0.3) |
(0.2) |
(0.4) |
(0.4) |
(0.3) |
(0.3) |
(0.3) |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
33.7 |
27.6 |
39.0 |
35.0 |
31.5 |
22.7 |
22.3 |
25.9 |
||
Net income (reported) |
30.2 |
20.5 |
31.5 |
22.6 |
(20.0) |
12.9 |
19.5 |
23.1 |
||
Basic average number of shares outstanding (m) |
19.1 |
19.2 |
19.3 |
19.5 |
19.6 |
20.3 |
23.7 |
23.7 |
||
EPS - basic normalised (p) |
|
|
176.1 |
144.1 |
201.8 |
179.4 |
160.6 |
111.6 |
94.3 |
109.5 |
EPS - diluted normalised (p) |
|
|
172.8 |
141.4 |
198.4 |
176.3 |
160.1 |
111.2 |
94.1 |
109.2 |
EPS - basic reported (p) |
|
|
157.8 |
107.0 |
163.0 |
115.8 |
(102.0) |
63.4 |
82.5 |
97.7 |
Dividend (p) |
85 |
55 |
74 |
94 |
94 |
18 |
0 |
58 |
||
Revenue growth (%) |
17.0 |
2.5 |
16.7 |
3.0 |
20.8 |
6.7 |
(-0.8) |
3.8 |
||
Gross Margin (%) |
47.3 |
45.1 |
47.2 |
45.1 |
41.5 |
41.8 |
41.8 |
42.0 |
||
EBITDA Margin (%) |
25.2 |
22.3 |
24.3 |
23.1 |
19.4 |
18.8 |
19.4 |
20.0 |
||
Normalised Operating Margin |
22.0 |
17.5 |
19.7 |
18.8 |
14.8 |
13.7 |
13.7 |
14.3 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
129.2 |
137.4 |
135.2 |
150.5 |
255.1 |
287.1 |
290.6 |
293.4 |
Intangible Assets |
97.7 |
99.6 |
98.8 |
108.8 |
147.4 |
147.9 |
148.9 |
149.7 |
||
Tangible Assets |
30.7 |
35.9 |
33.5 |
38.5 |
91.5 |
123.0 |
125.5 |
127.5 |
||
Investments & other |
0.8 |
1.9 |
2.9 |
3.2 |
16.2 |
16.2 |
16.2 |
16.2 |
||
Current Assets |
|
|
105.1 |
96.0 |
107.0 |
121.7 |
226.6 |
238.3 |
231.8 |
226.4 |
Stocks |
56.5 |
44.1 |
54.2 |
74.0 |
114.4 |
120.1 |
110.4 |
109.1 |
||
Debtors |
33.0 |
34.8 |
30.2 |
30.8 |
42.4 |
42.4 |
42.1 |
43.7 |
||
Cash & cash equivalents |
11.5 |
11.2 |
13.9 |
9.0 |
22.3 |
32.2 |
39.8 |
38.0 |
||
Other |
4.1 |
5.9 |
8.7 |
7.9 |
47.5 |
43.5 |
39.5 |
35.5 |
||
Current Liabilities |
|
|
(26.8) |
(30.4) |
(34.7) |
(49.0) |
(106.2) |
(107.4) |
(106.5) |
(108.3) |
Creditors |
(22.4) |
(25.2) |
(28.3) |
(44.7) |
(52.6) |
(62.0) |
(61.1) |
(62.9) |
||
Tax and social security |
(4.2) |
(3.1) |
(4.9) |
(2.5) |
(4.9) |
(4.9) |
(4.9) |
(4.9) |
||
Short term borrowings |
0.0 |
(1.6) |
(1.5) |
(1.8) |
(2.6) |
(3.4) |
(3.4) |
(3.4) |
||
Other |
(0.2) |
(0.5) |
0.0 |
0.0 |
(46.1) |
(37.1) |
(37.1) |
(37.1) |
||
Long Term Liabilities |
|
|
(70.1) |
(64.1) |
(43.0) |
(50.8) |
(236.0) |
(234.3) |
(212.6) |
(190.9) |
Long term borrowings |
(63.5) |
(57.3) |
(35.2) |
(39.9) |
(223.1) |
(221.4) |
(199.7) |
(178.0) |
||
Other long term liabilities |
(6.6) |
(6.8) |
(7.8) |
(10.9) |
(12.9) |
(12.9) |
(12.9) |
(12.9) |
||
Net Assets |
|
|
137.4 |
138.9 |
164.5 |
172.4 |
139.5 |
183.6 |
203.2 |
220.5 |
Minority interests |
(1.0) |
(0.7) |
(0.7) |
(0.9) |
(0.8) |
(0.9) |
(0.9) |
(1.0) |
||
Shareholders' equity |
|
|
136.4 |
138.2 |
163.8 |
171.5 |
138.7 |
182.8 |
202.3 |
219.5 |
CASH FLOW |
||||||||||
Op Cash Flow before WC and tax |
49.2 |
44.5 |
56.8 |
55.5 |
56.4 |
58.3 |
59.7 |
63.9 |
||
Working capital |
(21.6) |
10.6 |
(6.2) |
(4.0) |
(33.5) |
3.6 |
9.2 |
1.5 |
||
Exceptional & other |
3.2 |
(4.4) |
(1.7) |
(10.9) |
(57.7) |
(16.0) |
0.0 |
0.0 |
||
Tax |
(4.1) |
(4.5) |
(3.3) |
(4.2) |
(4.1) |
0.9 |
(0.9) |
(1.8) |
||
Net operating cash flow |
|
|
26.7 |
46.2 |
45.6 |
36.4 |
(38.9) |
46.9 |
67.9 |
63.6 |
Capex |
(15.0) |
(16.3) |
(14.9) |
(21.9) |
(19.4) |
(50.0) |
(23.0) |
(23.0) |
||
Acquisitions/disposals |
(35.4) |
0.0 |
(0.5) |
0.0 |
(33.0) |
0.0 |
0.0 |
0.0 |
||
Net interest |
(1.5) |
(2.7) |
(1.3) |
(0.9) |
(5.5) |
(14.0) |
(14.0) |
(13.0) |
||
Equity financing |
0.6 |
0.5 |
3.5 |
0.6 |
0.0 |
44.2 |
0.0 |
0.0 |
||
Dividends |
(15.6) |
(17.2) |
(7.3) |
(18.4) |
(19.0) |
(15.0) |
(0.2) |
(6.1) |
||
Other |
0.0 |
(1.5) |
(1.7) |
(1.7) |
(5.8) |
(3.2) |
(3.2) |
(3.2) |
||
Net Cash Flow |
(40.2) |
9.0 |
23.4 |
(5.9) |
(121.6) |
8.8 |
27.5 |
18.3 |
||
Opening net debt/(cash) |
|
|
9.0 |
52.0 |
41.3 |
17.9 |
24.6 |
151.0 |
142.2 |
114.6 |
FX |
(2.7) |
1.7 |
0.0 |
(0.8) |
(4.8) |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
52.0 |
41.3 |
17.9 |
24.6 |
151.0 |
142.2 |
114.6 |
96.4 |
Source: XP Power, Edison Investment Research
|
|
Research: Industrials
Dowlais Group’s positive trading update, with growth ahead of the market and continued margin expansion, provides another marker in delivering on the stated strategy. Management intends to drive profitable growth through the EV transition and expand the underlying operating margin to 11% (FY22: 6.6%). Delivery on these targets will highlight the quality of the operations and valuation discrepancy.