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Research: TMT
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.
XP Power |
Maintaining FY23 outlook |
Q123 trading update |
Electronic and electrical equipment |
13 April 2023 |
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 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* |
EPS* |
DPS |
P/E |
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
|
|
Research: Investment Companies
Channel Islands Property Fund (CIPF) has proved to be a resilient investment since its launch in 2010 and remains an attractive income-generating fund with a 6.6% dividend yield. The markets it operates in, the Channel Islands and the Isle of Man, are withstanding current uncertainties over a potential recession and increasing interest rates relatively well compared to mainland UK in terms of property valuation. Nevertheless, CIPF management entered into two derivative agreements in FY22 to hedge its interest expenses, which resulted in a significant profit from the valuation of these instruments.