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Research: TMT
XP Power’s Q1 trading update confirmed that revenues increased 4% y o y/q o q and the Chinese facility has returned to normal staffing levels. Strong demand, mainly from healthcare customers, saw a 25% q o q increase in orders and a Q1 book-to-bill of 1.49x. Despite strong Q1 demand, the level of uncertainty surrounding both supply and demand for the rest of the year has caused XP to cancel its previously proposed Q419 dividend in order to preserve cash. We maintain our revenue forecasts, but factor in higher costs in FY20 and remove our Q419 and Q120 dividend estimates.
XP Power |
Healthcare customers boost Q1 book-to-bill |
Q1 trading update |
Tech hardware & equipment |
3 April 2020 |
Share price performance
Business description
Next events
Analyst
XP Power is a research client of Edison Investment Research Limited |
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XP Power’s Q1 trading update confirmed that revenues increased 4% yoy/qoq and the Chinese facility has returned to normal staffing levels. Strong demand, mainly from healthcare customers, saw a 25% qoq increase in orders and a Q1 book-to-bill of 1.49x. Despite strong Q1 demand, the level of uncertainty surrounding both supply and demand for the rest of the year has caused XP to cancel its previously proposed Q419 dividend in order to preserve cash. We maintain our revenue forecasts, but factor in higher costs in FY20 and remove our Q419 and Q120 dividend estimates.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
12/18 |
195.1 |
41.2 |
172.8 |
85.0 |
14.5 |
3.4 |
12/19 |
199.9 |
33.2 |
145.5 |
55.0 |
17.3 |
2.2 |
12/20e |
209.2 |
37.1 |
158.5 |
77.0 |
15.8 |
3.1 |
12/21e |
218.2 |
42.8 |
179.1 |
99.0 |
14.0 |
3.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q1 order intake spikes on healthcare demand
XP received orders worth £73.1m in Q120, up 34% y-o-y (up 33% constant currency) and up 25% q-o-q. The healthcare sector was particularly strong (XP is designed into c 60 different ventilators) but other sectors were also robust. Q1 revenues of £49.1m were up 4% y-o-y/q-o-q despite the supply chain challenges in China. The Chinese facility is now back up to full strength and Vietnam is also fully operational. End Q120 net debt stood at £45.3m; the company has committed liquidity of £50m through bank loans and cash facilities. XP has decided to withdraw the resolution for the previously announced final 36p dividend, which will preserve £6.9m in cash, and will look to resume paying quarterly dividends as soon as possible.
Outlook uncertain for the remainder of the year
Q1 order intake was higher than we had expected, but it is unclear how much of it is incremental new business and how much is demand being pulled in from H220. In addition, weaker sterling versus the dollar could provide upside to our revenue forecasts. We make no change to our revenue forecasts, as although the Q1 order intake would indicate a revenue upgrade, there is too much uncertainty over demand for the rest of FY20 as well as the potential for COVID-19 restrictions to hamper XP’s ability to deliver product. We factor in higher costs in FY20 to deal with disruptions in the supply chain and cut Q419 and Q120 dividends to zero.
Valuation: Uncertainty weighing on the share price
Since XP reported FY19 results on 3 March, the stock has declined 23% on fears of further COVID-19 disruption. On a P/E basis, XP continues to trade at a material discount to global power converter companies and a smaller discount to UK electronics companies, despite generating EBIT margins at the top end of the peer group. Until there is more clarity on the longer-term global economic implications of COVID-19, we would expect the shares to tread water. However, we highlight XP’s strong backlog and access to funding, which should support it during this period.
Changes to forecasts
Exhibit 1: Changes to forecasts
£m |
FY20e |
FY20e |
y-o-y |
FY21e |
FY21e |
y-o-y |
||
Old |
New |
Change |
Old |
New |
Change |
|||
Revenues |
209.2 |
209.2 |
0.0% |
4.7% |
218.2 |
218.2 |
0.0% |
4.3% |
Gross profit |
95.0 |
94.3 |
(0.7%) |
4.6% |
100.3 |
100.1 |
(0.1%) |
6.2% |
Gross margin |
45.4% |
45.1% |
(0.3%) |
(0.0%) |
45.9% |
45.9% |
(0.1%) |
0.8% |
EBITDA |
51.3 |
49.5 |
(3.4%) |
9.1% |
55.3 |
55.3 |
0.0% |
11.6% |
EBITDA margin |
24.5% |
23.7% |
(0.8%) |
1.0% |
25.3% |
25.3% |
0.0% |
1.7% |
Normalised operating profit |
41.4 |
39.6 |
(4.2%) |
10.4% |
45.1 |
45.1 |
0.0% |
13.7% |
Normalised operating profit margin |
19.8% |
18.9% |
(0.8%) |
1.0% |
20.7% |
20.7% |
0.0% |
1.7% |
Reported operating profit |
34.2 |
32.4 |
(5.1%) |
21.5% |
41.4 |
41.4 |
0.0% |
27.6% |
Reported operating margin |
16.3% |
15.5% |
(0.8%) |
2.2% |
19.0% |
19.0% |
0.0% |
3.5% |
Normalised PBT |
38.9 |
37.1 |
(4.5%) |
11.9% |
42.8 |
42.8 |
0.0% |
15.2% |
Reported PBT |
31.7 |
29.9 |
(5.5%) |
24.8% |
39.1 |
39.1 |
0.0% |
30.5% |
Normalised net income |
32.3 |
30.9 |
(4.4%) |
8.6% |
34.9 |
34.9 |
0.0% |
13.0% |
Reported net income |
25.7 |
24.3 |
(5.6%) |
18.6% |
31.8 |
31.8 |
0.0% |
30.9% |
Normalised basic EPS (p) |
169.1 |
161.6 |
(4.4%) |
9.0% |
182.5 |
182.5 |
0.0% |
13.0% |
Normalised diluted EPS (p) |
165.9 |
158.5 |
(4.4%) |
9.0% |
179.1 |
179.1 |
0.0% |
13.0% |
Reported basic EPS (p) |
134.8 |
127.3 |
(5.6%) |
18.9% |
166.6 |
166.6 |
0.0% |
30.9% |
Dividend per share (p) |
95.0 |
77.0 |
(18.9%) |
40.0% |
99.0 |
99.0 |
0.0% |
28.6% |
Net debt/(cash) |
46.9 |
39.5 |
(15.9%) |
(17.3%) |
38.4 |
31.1 |
(19.2%) |
(21.3%) |
Net debt/(cash) pre-lease liabilities |
42.0 |
34.6 |
(17.8%) |
(16.3%) |
35.0 |
27.7 |
(20.0%) |
Source: Edison Investment Research
Exhibit 2: Financial summary
£m |
2015 |
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||||
Revenue |
|
|
109.7 |
129.8 |
166.8 |
195.1 |
199.9 |
209.2 |
218.2 |
Cost of Sales |
(55.1) |
(67.8) |
(89.2) |
(102.8) |
(109.8) |
(114.9) |
(118.1) |
||
Gross Profit |
54.6 |
62.0 |
77.6 |
92.3 |
90.1 |
94.3 |
100.1 |
||
EBITDA |
|
|
29.7 |
33.0 |
41.7 |
49.2 |
45.4 |
49.5 |
55.3 |
Normalised operating profit |
|
|
25.9 |
28.8 |
36.4 |
42.9 |
35.9 |
39.6 |
45.1 |
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) |
(3.5) |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(0.5) |
(0.5) |
||
Reported operating profit |
25.6 |
28.0 |
32.5 |
39.3 |
26.7 |
32.4 |
41.4 |
||
Net Interest |
(0.2) |
(0.2) |
(0.3) |
(1.7) |
(2.7) |
(2.5) |
(2.3) |
||
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) |
|
|
25.7 |
28.6 |
36.1 |
41.2 |
33.2 |
37.1 |
42.8 |
Profit Before Tax (reported) |
|
|
25.4 |
27.8 |
32.2 |
37.6 |
24.0 |
29.9 |
39.1 |
Reported tax |
(5.5) |
(6.3) |
(3.6) |
(7.2) |
(3.2) |
(5.4) |
(7.0) |
||
Profit After Tax (norm) |
20.2 |
22.3 |
28.8 |
33.9 |
28.7 |
31.1 |
35.1 |
||
Profit After Tax (reported) |
19.9 |
21.5 |
28.6 |
30.4 |
20.8 |
24.6 |
32.1 |
||
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 |
30.9 |
34.9 |
||
Net income (reported) |
19.7 |
21.3 |
28.3 |
30.2 |
20.5 |
24.3 |
31.8 |
||
Basic average number of shares outstanding (m) |
19 |
19 |
19 |
19 |
19 |
19 |
19 |
||
EPS - basic normalised (p) |
|
|
105.3 |
116.2 |
149.4 |
176.1 |
148.3 |
161.6 |
182.5 |
EPS - diluted normalised (p) |
|
|
104.3 |
115.3 |
147.0 |
172.8 |
145.5 |
158.5 |
179.1 |
EPS - basic reported (p) |
|
|
103.7 |
112.0 |
148.3 |
157.8 |
107.0 |
127.3 |
166.6 |
Dividend (p) |
66 |
71 |
78 |
85 |
55 |
77 |
99 |
||
Revenue growth (%) |
8.5 |
18.3 |
28.5 |
17.0 |
2.5 |
4.7 |
4.3 |
||
Gross Margin (%) |
49.8 |
47.8 |
46.5 |
47.3 |
45.1 |
45.1 |
45.9 |
||
EBITDA Margin (%) |
27.0 |
25.4 |
25.0 |
25.2 |
22.7 |
23.7 |
25.3 |
||
Normalised Operating Margin |
23.6 |
22.2 |
21.8 |
22.0 |
18.0 |
18.9 |
20.7 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
65.4 |
73.2 |
88.1 |
129.2 |
137.4 |
142.8 |
145.9 |
Intangible Assets |
48.2 |
53.0 |
63.9 |
97.7 |
99.6 |
104.7 |
106.1 |
||
Tangible Assets |
16.1 |
19.1 |
22.5 |
30.7 |
35.9 |
36.2 |
37.9 |
||
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 |
101.7 |
106.4 |
Stocks |
28.7 |
32.2 |
37.8 |
56.5 |
44.1 |
46.2 |
47.4 |
||
Debtors |
17.5 |
21.5 |
23.8 |
33.0 |
34.8 |
36.7 |
38.3 |
||
Cash & cash equivalents |
4.9 |
9.2 |
15.0 |
11.5 |
11.2 |
12.9 |
14.8 |
||
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) |
(30.6) |
(31.1) |
Creditors |
(14.6) |
(16.1) |
(21.4) |
(22.4) |
(25.2) |
(25.4) |
(25.9) |
||
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) |
(57.6) |
(51.1) |
Long term borrowings |
(4.6) |
0.0 |
(24.0) |
(63.5) |
(57.3) |
(50.8) |
(44.3) |
||
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 |
156.2 |
170.1 |
Minority interests |
(0.8) |
(0.8) |
(0.9) |
(1.0) |
(0.7) |
(1.1) |
(1.1) |
||
Shareholders' equity |
|
|
88.3 |
106.1 |
116.0 |
136.4 |
138.2 |
155.1 |
169.0 |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
29.7 |
33.0 |
41.7 |
49.2 |
45.4 |
49.5 |
55.3 |
||
Working capital |
(4.6) |
(6.1) |
0.4 |
(21.6) |
10.6 |
(3.8) |
(2.3) |
||
Exceptional & other |
0.6 |
5.1 |
(6.3) |
3.2 |
(5.3) |
(3.5) |
0.0 |
||
Tax |
(4.7) |
(4.1) |
(6.1) |
(4.1) |
(4.5) |
(5.4) |
(7.0) |
||
Net operating cash flow |
|
|
21.0 |
27.9 |
29.7 |
26.7 |
46.2 |
36.9 |
45.9 |
Capex |
(5.4) |
(6.8) |
(10.1) |
(15.0) |
(16.3) |
(18.5) |
(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) |
(2.5) |
(2.3) |
||
Equity financing |
0.0 |
0.2 |
(0.2) |
0.6 |
0.5 |
0.0 |
0.0 |
||
Dividends |
(12.2) |
(13.1) |
(14.2) |
(15.6) |
(17.2) |
(7.7) |
(18.7) |
||
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 |
6.7 |
6.9 |
||
Opening net debt/(cash) |
|
|
(1.3) |
3.7 |
(3.7) |
9.0 |
52.0 |
41.3 |
34.6 |
FX |
(0.2) |
(0.5) |
0.6 |
(2.7) |
1.7 |
0.0 |
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 |
34.6 |
27.7 |
Source: XP Power accounts, Edison Investment Research
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Research: Metals & Mining
On 1 April, Wheaton Precious Metals (WPM) announced that all of its partners’ mines are operational, with the exception of Voisey’s Bay, Constancia, Yauliyacu and Penasquito. Voisey’s Bay is not scheduled to deliver cobalt to WPM until FY21, so its temporary furlough will make no difference to FY20 estimates. However, other mines at risk of temporary closure include San Dimas and Los Filos in Mexico. As a result, WPM has withdrawn its production guidance for FY20. However, assuming these mines remain closed throughout Q220, but at higher prevailing metals prices (see Exhibit 1, overleaf), our FY20 EPS forecast for WPM has increased by 18.6%.