XP Power — Maintaining FY23 outlook

XP Power (LSE: XPP)

Last close As at 23/05/2024

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Research: TMT

XP Power — Maintaining FY23 outlook

XP Power confirmed that trading in Q123 was in line with its expectations. As expected, order intake declined from the record level a year ago, reflecting an improving supply chain and softening end-market demand, particularly for semiconductor equipment and industrial technology. Revenue and profitability were higher than a year ago. The strong backlog provides good visibility for the remainder of the year and we expect it to gradually reduce as current year orders are shipped and customers revert to pre-pandemic ordering patterns. We maintain our forecasts.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

XP Power

Maintaining FY23 outlook

Q123 trading update

Electronic and electrical equipment

13 April 2023

Price

1860p

Market cap

£365m

$1.25/£

Net debt (£m) at end Q123

147.0

Shares in issue at end 2022

19.6m

Free float

93.7%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(15.1)

(13.7)

(46.5)

Rel (local)

(15.5)

(13.4)

(47.0)

52-week high/low

3,600p

1,464p

Business description

XP Power is a developer and designer of power control solutions, with production facilities in China, Vietnam, Germany and the United States, and design, service and sales teams across Europe, the United States and Asia.

Next events

H123 results

August

Analyst

Katherine Thompson

+44 (0)20 3077 5700

XP Power is a research client of Edison Investment Research Limited

XP Power confirmed that trading in Q123 was in line with its expectations. As expected, order intake declined from the record level a year ago, reflecting an improving supply chain and softening end-market demand, particularly for semiconductor equipment and industrial technology. Revenue and profitability were higher than a year ago. The strong backlog provides good visibility for the remainder of the year and we expect it to gradually reduce as current year orders are shipped and customers revert to pre-pandemic ordering patterns. We maintain our forecasts.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

240.3

43.8

176.3

94

10.6

5.1

12/22

290.4

38.0

160.1

94

11.6

5.1

12/23e

309.5

37.3

152.3

94

12.2

5.1

12/24e

316.8

43.3

174.6

97

10.7

5.2

Note: *PBT and EPS (diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Q1 trading in line with expectations

XP Power reported Q123 revenue of £77.9m, up 26% y-o-y or 16% in constant currency (cc) and down 11% q-o-q, resulting in improved profitability year-on-year. Order intake of £61.2m was down 40% y-o-y or 45% cc and down 11% q-o-q, resulting in a book-to-bill ratio of 0.79x for the quarter. As a reminder, Q122 order intake was a record and reflected customer concerns over long lead times. The order book declined from £308m at the end of FY22 to £280m at the end of Q123. Net debt at the end of Q123 was £147.0m, down from £151.0m at the end of FY22. The company expects net debt/EBITDA at the end of H123 to be below the level at the end of FY22 (2.7x) and to decline towards 2x by the end of FY23 (our forecast: 2.3x). A Q1 dividend of 18p (flat year-on-year) was announced, in line with our forecast.

Full year outlook unchanged

Management’s view on the outlook for FY23 is unchanged, noting that the outturn is likely to have a modest H2 weighting. XP expects a similar level of orders in Q223 before a pick-up in demand in H223. We expect the book-to-bill ratio to remain below one for the rest of the year and for the backlog to reduce from the current high level (which based on Q1 revenue equates to more than 10 months of revenue visibility, well ahead of the historical four- to five-month level). We maintain our forecasts.

Valuation: Discount has widened

The shares have declined 24% since we last wrote in February and the discount to peers has widened. On a P/E basis for FY23 and FY24, XP is trading at a c 30% discount to global power solution companies and UK electronics companies (compared to a 15% discount at the end of February), with a dividend yield at the top end of the range. The company generates EBITDA and EBIT margins at the upper end of both peer groups and has a strong order book. In our view, further evidence of an improving supply chain, resolution of the Comet litigation and stability in order intake will be the key drivers of the share price.

Exhibit 1: Financial summary

£m

2017

2018

2019

2020

2021

2022

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

166.8

195.1

199.9

233.3

240.3

290.4

309.5

316.8

Cost of Sales

(89.2)

(102.8)

(109.8)

(123.2)

(132.0)

(169.8)

(174.8)

(174.7)

Gross Profit

77.6

92.3

90.1

110.1

108.3

120.6

134.7

142.1

EBITDA

 

 

41.7

49.2

44.5

56.8

55.5

56.4

65.3

71.8

Normalised operating profit

 

 

36.4

42.9

35.0

46.0

45.1

42.9

49.3

54.3

Amortisation of acquired intangibles

(0.6)

(2.8)

(3.2)

(3.2)

(2.8)

(4.1)

(4.1)

(4.1)

Exceptionals

(3.3)

(0.8)

(5.1)

(5.4)

(12.6)

(62.9)

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

32.5

39.3

26.7

37.4

29.7

(24.1)

45.2

50.2

Net Interest

(0.3)

(1.7)

(2.7)

(1.7)

(1.3)

(4.9)

(12.0)

(11.0)

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

0.0

(1.2)

0.0

0.0

Profit Before Tax (norm)

 

 

36.1

41.2

32.3

44.3

43.8

38.0

37.3

43.3

Profit Before Tax (reported)

 

 

32.2

37.6

24.0

35.7

28.4

(30.2)

33.2

39.2

Reported tax

(3.6)

(7.2)

(3.2)

(4.0)

(5.4)

10.6

(6.3)

(7.8)

Profit After Tax (norm)

28.8

33.9

27.9

39.2

35.4

31.9

30.3

34.7

Profit After Tax (reported)

28.6

30.4

20.8

31.7

23.0

(19.6)

26.9

31.4

Minority interests

(0.3)

(0.2)

(0.3)

(0.2)

(0.4)

(0.4)

(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)

28.5

33.7

27.6

39.0

35.0

31.5

30.0

34.4

Net income (reported)

28.3

30.2

20.5

31.5

22.6

(20.0)

26.7

31.1

Basic average number of shares outstanding (m)

19.1

19.1

19.2

19.3

19.5

19.6

19.6

19.6

EPS - basic normalised (p)

 

 

149.4

176.1

144.1

201.8

179.4

160.6

152.7

175.2

EPS - diluted normalised (p)

 

 

147.0

172.8

141.4

198.4

176.3

160.1

152.3

174.6

EPS - basic reported (p)

 

 

148.3

157.8

107.0

163.0

115.8

(102.0)

135.8

158.5

Dividend (p)

78

85

55

74

94

94

94

97

Revenue growth (%)

28.5

17.0

2.5

16.7

3.0

20.8

6.6

2.4

Gross Margin (%)

46.5

47.3

45.1

47.2

45.1

41.5

43.5

44.8

EBITDA Margin (%)

25.0

25.2

22.3

24.3

23.1

19.4

21.1

22.7

Normalised Operating Margin (%)

21.8

22.0

17.5

19.7

18.8

14.8

15.9

17.1

BALANCE SHEET

Fixed Assets

 

 

88.1

129.2

137.4

135.2

150.5

255.1

276.5

279.4

Intangible Assets

63.9

97.7

99.6

98.8

108.8

147.4

147.3

147.7

Tangible Assets

22.5

30.7

35.9

33.5

38.5

91.5

113.0

115.5

Investments & other

1.7

0.8

1.9

2.9

3.2

16.2

16.2

16.2

Current Assets

 

 

83.5

105.1

96.0

107.0

121.7

226.6

201.3

202.7

Stocks

37.8

56.5

44.1

54.2

74.0

114.4

93.4

93.3

Debtors

23.8

33.0

34.8

30.2

30.8

42.4

42.4

43.4

Cash & cash equivalents

15.0

11.5

11.2

13.9

9.0

22.3

22.0

26.5

Other

6.9

4.1

5.9

8.7

7.9

47.5

43.5

39.5

Current Liabilities

 

 

(25.1)

(26.8)

(30.4)

(34.7)

(49.0)

(106.2)

(101.1)

(101.3)

Creditors

(21.4)

(22.4)

(25.2)

(28.3)

(44.7)

(52.6)

(57.5)

(57.7)

Tax and social security

(3.5)

(4.2)

(3.1)

(4.9)

(2.5)

(4.9)

(4.9)

(4.9)

Short term borrowings

0.0

0.0

(1.6)

(1.5)

(1.8)

(2.6)

(2.6)

(2.6)

Other

(0.2)

(0.2)

(0.5)

0.0

0.0

(46.1)

(36.1)

(36.1)

Long Term Liabilities

 

 

(29.6)

(70.1)

(64.1)

(43.0)

(50.8)

(236.0)

(227.8)

(219.6)

Long term borrowings

(24.0)

(63.5)

(57.3)

(35.2)

(39.9)

(223.1)

(214.9)

(206.7)

Other long term liabilities

(5.6)

(6.6)

(6.8)

(7.8)

(10.9)

(12.9)

(12.9)

(12.9)

Net Assets

 

 

116.9

137.4

138.9

164.5

172.4

139.5

148.8

161.1

Minority interests

(0.9)

(1.0)

(0.7)

(0.7)

(0.9)

(0.8)

(0.9)

(0.9)

Shareholders' equity

 

 

116.0

136.4

138.2

163.8

171.5

138.7

148.0

160.2

CASH FLOW

Op Cash Flow before WC and tax

41.7

49.2

44.5

56.8

55.5

56.4

65.3

71.8

Working capital

0.4

(21.6)

10.6

(6.2)

(4.0)

(33.5)

26.0

(0.8)

Exceptional & other

(6.3)

3.2

(4.4)

(1.7)

(10.9)

(57.7)

(10.0)

0.0

Tax

(6.1)

(4.1)

(4.5)

(3.3)

(4.2)

(4.1)

(2.3)

(3.8)

Net operating cash flow

 

 

29.7

26.7

46.2

45.6

36.4

(38.9)

79.0

67.2

Capex

(10.1)

(15.0)

(16.3)

(14.9)

(21.9)

(19.4)

(40.0)

(23.0)

Acquisitions/disposals

(18.3)

(35.4)

0.0

(0.5)

0.0

(33.0)

0.0

0.0

Net interest

(0.2)

(1.5)

(2.7)

(1.3)

(0.9)

(5.5)

(12.0)

(11.0)

Equity financing

(0.2)

0.6

0.5

3.5

0.6

0.0

0.0

0.0

Dividends

(14.2)

(15.6)

(17.2)

(7.3)

(18.4)

(19.0)

(18.6)

(19.1)

Other

0.0

0.0

(1.5)

(1.7)

(1.7)

(5.8)

(1.7)

(1.7)

Net Cash Flow

(13.3)

(40.2)

9.0

23.4

(5.9)

(121.6)

6.6

12.4

Opening net debt/(cash)

 

 

(3.7)

9.0

52.0

41.3

17.9

24.6

151.0

144.4

FX

0.6

(2.7)

1.7

0.0

(0.8)

(4.8)

0.0

0.0

Other non-cash movements

0.0

(0.1)

0.0

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

9.0

52.0

41.3

17.9

24.6

151.0

144.4

131.9

Source: XP Power, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by XP Power and prepared and issued by Edison, in consideration of a fee payable by XP Power. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by XP Power and prepared and issued by Edison, in consideration of a fee payable by XP Power. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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