XP Power — Q3 bookings up 73% year-on-year

XP Power (LSE: XPP)

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GBP15.66

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Research: TMT

XP Power — Q3 bookings up 73% year-on-year

XP Power has reported another record quarter for orders as customers in all three sectors seek to secure their requirements in the midst of global supply-chain challenges. Revenue and bookings for the nine months to 30 September (9M21) are ahead of our expectations and we have revised our forecasts to reflect this, with EPS upgrades of 2% in FY21 and 3% in FY22.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

XP Power

Q3 bookings up 73% year-on-year

Q3 trading update

Tech hardware & equipment

11 October 2021

Price

4,980p

Market cap

£978m

$1.38:£1

Net debt (£m) at end Q321

25.2

Shares in issue

19.6m

Free float

90%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.5)

(9.8)

6.4

Rel (local)

(4.5)

(10.4)

(11.8)

52-week high/low

5,700p

3,960p

Business description

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

Next events

FY21 trading update

January 2022

Analyst

Katherine Thompson

+44 (0)20 3077 5730

XP Power is a research client of Edison Investment Research Limited

XP Power has reported another record quarter for orders as customers in all three sectors seek to secure their requirements in the midst of global supply-chain challenges. Revenue and bookings for the nine months to 30 September (9M21) are ahead of our expectations and we have revised our forecasts to reflect this, with EPS upgrades of 2% in FY21 and 3% in FY22.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/19

199.9

32.3

141.4

55.0

35.2

1.1

12/20

233.3

44.3

198.4

74.0

25.1

1.5

12/21e

243.7

44.8

184.4

95.0

27.0

1.9

12/22e

257.1

49.3

203.7

98.0

24.4

2.0

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

Record order intake in Q3

XP reported Q321 order intake of £97.2m, up 73% y-o-y (87% in constant currency, cc) and 16% q-o-q. While the company saw continued strong demand from the semiconductor manufacturing equipment sector, it also benefited from the ongoing recovery in industrial technology and a pick-up in demand from the healthcare sector (where orders were 70% higher than 2019 levels). XP has seen lead times extend due to supply chain issues, which has prompted many customers to seek security of supply, with most recent orders unlikely to be fulfilled until H222. Q321 revenue of £61.6m was down 11% y-o-y or 5% cc, with 9M21 revenue up 4% y-o-y or 12% cc. Q321 book-to-bill was 1.58x and 9M21 was 1.40x. XP closed Q321 with net debt of £25.2m and declared a Q3 dividend of 21p, ahead of our 20p forecast.

Upgrading estimates on strong outlook

The board’s expectations for FY21 are in line with market expectations. Management also sounded a note of caution on the supply chain issues it is facing, including component shortages, COVID-19 restrictions and freight capacity constraints, all of which are putting upward pressure on costs. We have revised up our forecasts to reflect slightly stronger than expected revenue in H221 and a higher order backlog. Our revenue forecasts increase by 1% in FY21 and 2% in FY22 resulting in normalised diluted EPS forecast increases of 2% in FY21 and 3% in FY22. We also tweak up our dividend forecast for FY21 by 1p to 95p.

Valuation: Semiconductor sector drives volatility

The share price rebounded after H1 results were released, reaching 5,630p on 17 August. Since then, the stock has declined 12%, in line with semiconductor equipment stocks, while the FTSE 250 is down 8% from its peak, we believe on inflation and supply chain concerns. On an FY21e P/E basis, XP is trading at a 21% premium to global power-converter companies but a 2% discount to UK electronics companies, with a dividend yield at the upper end of the range. The company generates EBITDA and EBIT margins at the top end of both peer groups.

Changes to forecasts

Exhibit 1: Changes to forecasts

£'m

FY21e

FY21e

y-o-y

FY22e

FY22e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

241.1

243.7

1.1%

4.4%

252.0

257.1

2.0%

5.5%

Gross profit

111.4

112.6

1.1%

2.3%

117.8

120.2

2.1%

6.7%

Gross margin

46.2%

46.2%

0.0%

(1.0%)

46.7%

46.7%

0.0%

0.5%

EBITDA

57.0

57.9

1.6%

2.0%

61.4

62.8

2.2%

8.4%

EBITDA margin

23.6%

23.8%

0.1%

(0.6%)

24.4%

24.4%

0.0%

0.6%

Normalised operating profit

45.4

46.3

2.0%

0.7%

49.2

50.6

2.8%

9.2%

Normalised operating margin

18.8%

19.0%

0.2%

(0.7%)

19.5%

19.7%

0.1%

0.7%

Reported operating profit

35.7

36.6

2.5%

(2.1%)

46.0

47.4

3.0%

29.4%

Reported operating margin

14.8%

15.0%

0.2%

(1.0%)

18.3%

18.4%

0.2%

3.4%

Normalised PBT

43.9

44.8

2.0%

1.2%

47.9

49.3

2.9%

9.9%

Reported PBT

34.2

35.1

2.6%

(1.6%)

44.7

46.1

3.1%

31.2%

Normalised net income

36.1

36.8

2.1%

(5.6%)

39.5

40.7

2.9%

10.5%

Reported net income

28.2

28.9

2.6%

(8.3%)

36.9

38.0

3.1%

31.5%

Normalised basic EPS (p)

183.6

187.4

2.1%

(7.1%)

201.3

207.1

2.9%

10.5%

Normalised diluted EPS (p)

180.6

184.4

2.1%

(7.1%)

198.0

203.7

2.9%

10.5%

Reported basic EPS (p)

143.4

147.2

2.6%

(9.7%)

187.7

193.5

3.1%

31.5%

Dividend per share (p)

94.0

95.0

1.1%

28.4%

98.0

98.0

0.0%

3.2%

Net debt/(cash)

24.0

24.0

(0.1%)

34.2%

12.4

12.1

(2.6%)

(49.6%)

Source: Edison Investment Research

Exhibit 2: Financial summary

£'m

2015

2016

2017

2018

2019

2020

2021e

2022e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

109.7

129.8

166.8

195.1

199.9

233.3

243.7

257.1

Cost of Sales

(55.1)

(67.8)

(89.2)

(102.8)

(109.8)

(123.2)

(131.1)

(136.9)

Gross Profit

54.6

62.0

77.6

92.3

90.1

110.1

112.6

120.2

EBITDA

 

 

29.7

33.0

41.7

49.2

44.5

56.8

57.9

62.8

Normalised operating profit

 

 

25.9

28.8

36.4

42.9

35.0

46.0

46.3

50.6

Amortisation of acquired intangibles

0.0

(0.4)

(0.6)

(2.8)

(3.2)

(3.2)

(3.2)

(3.2)

Exceptionals

(0.3)

(0.4)

(3.3)

(0.8)

(5.1)

(5.4)

(6.5)

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

25.6

28.0

32.5

39.3

26.7

37.4

36.6

47.4

Net Interest

(0.2)

(0.2)

(0.3)

(1.7)

(2.7)

(1.7)

(1.5)

(1.3)

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

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

25.7

28.6

36.1

41.2

32.3

44.3

44.8

49.3

Profit Before Tax (reported)

 

 

25.4

27.8

32.2

37.6

24.0

35.7

35.1

46.1

Reported tax

(5.5)

(6.3)

(3.6)

(7.2)

(3.2)

(4.0)

(6.0)

(7.8)

Profit After Tax (norm)

20.2

22.3

28.8

33.9

27.9

39.2

37.1

40.9

Profit After Tax (reported)

19.9

21.5

28.6

30.4

20.8

31.7

29.2

38.2

Minority interests

(0.2)

(0.2)

(0.3)

(0.2)

(0.3)

(0.2)

(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)

20.0

22.1

28.5

33.7

27.6

39.0

36.8

40.7

Net income (reported)

19.7

21.3

28.3

30.2

20.5

31.5

28.9

38.0

Basic average number of shares outstanding (m)

19.0

19.0

19.1

19.1

19.2

19.3

19.6

19.6

EPS - basic normalised (p)

 

 

105.3

116.2

149.4

176.1

144.1

201.8

187.4

207.1

EPS - diluted normalised (p)

 

 

104.3

115.3

147.0

172.8

141.4

198.4

184.4

203.7

EPS - basic reported (p)

 

 

103.7

112.0

148.3

157.8

107.0

163.0

147.2

193.5

Dividend (p)

66

71

78

85

55

74

95

98

Revenue growth (%)

8.5

18.3

28.5

17.0

2.5

16.7

4.4

5.5

Gross Margin (%)

49.8

47.8

46.5

47.3

45.1

47.2

46.2

46.7

EBITDA Margin (%)

27.0

25.4

25.0

25.2

22.3

24.3

23.8

24.4

Normalised Operating Margin

23.6

22.2

21.8

22.0

17.5

19.7

19.0

19.7

BALANCE SHEET

Fixed Assets

 

 

65.4

73.2

88.1

129.2

137.4

135.2

141.4

143.5

Intangible Assets

48.2

53.0

63.9

97.7

99.6

98.8

105.4

107.8

Tangible Assets

16.1

19.1

22.5

30.7

35.9

33.5

33.1

32.8

Investments & other

1.1

1.1

1.7

0.8

1.9

2.9

2.9

2.9

Current Assets

 

 

53.5

65.7

83.5

105.1

96.0

107.0

107.2

118.8

Stocks

28.7

32.2

37.8

56.5

44.1

54.2

55.7

58.1

Debtors

17.5

21.5

23.8

33.0

34.8

30.2

40.1

42.3

Cash & cash equivalents

4.9

9.2

15.0

11.5

11.2

13.9

2.8

9.7

Other

2.4

2.8

6.9

4.1

5.9

8.7

8.7

8.7

Current Liabilities

 

 

(19.8)

(25.8)

(25.1)

(26.8)

(30.4)

(34.7)

(36.9)

(38.3)

Creditors

(14.6)

(16.1)

(21.4)

(22.4)

(25.2)

(28.3)

(30.5)

(31.9)

Tax and social security

(1.2)

(3.3)

(3.5)

(4.2)

(3.1)

(4.9)

(4.9)

(4.9)

Short term borrowings

(4.0)

(5.5)

0.0

0.0

(1.6)

(1.5)

(1.5)

(1.5)

Other

0.0

(0.9)

(0.2)

(0.2)

(0.5)

0.0

0.0

0.0

Long Term Liabilities

 

 

(10.0)

(6.2)

(29.6)

(70.1)

(64.1)

(43.0)

(36.3)

(29.6)

Long term borrowings

(4.6)

0.0

(24.0)

(63.5)

(57.3)

(35.2)

(28.5)

(21.8)

Other long term liabilities

(5.4)

(6.2)

(5.6)

(6.6)

(6.8)

(7.8)

(7.8)

(7.8)

Net Assets

 

 

89.1

106.9

116.9

137.4

138.9

164.5

175.3

194.3

Minority interests

(0.8)

(0.8)

(0.9)

(1.0)

(0.7)

(0.7)

(0.8)

(0.8)

Shareholders' equity

 

 

88.3

106.1

116.0

136.4

138.2

163.8

174.6

193.5

CASH FLOW

Op Cash Flow before WC and tax

29.7

33.0

41.7

49.2

44.5

56.8

57.9

62.8

Working capital

(4.6)

(6.1)

0.4

(21.6)

10.6

(6.2)

(9.1)

(3.3)

Exceptional & other

0.6

5.1

(6.3)

3.2

(4.4)

(1.7)

(6.5)

0.0

Tax

(4.7)

(4.1)

(6.1)

(4.1)

(4.5)

(3.3)

(6.0)

(7.8)

Net operating cash flow

 

 

21.0

27.9

29.7

26.7

46.2

45.6

36.4

51.7

Capex

(5.4)

(6.8)

(10.1)

(15.0)

(16.3)

(14.9)

(21.0)

(17.5)

Acquisitions/disposals

(8.3)

0.1

(18.3)

(35.4)

0.0

(0.5)

0.0

0.0

Net interest

(0.1)

(0.2)

(0.2)

(1.5)

(2.7)

(1.3)

(1.5)

(1.3)

Equity financing

0.0

0.2

(0.2)

0.6

0.5

3.5

0.0

0.0

Dividends

(12.2)

(13.1)

(14.2)

(15.6)

(17.2)

(7.3)

(18.3)

(19.2)

Other

0.2

0.0

0.0

0.0

(1.5)

(1.7)

(1.7)

(1.7)

Net Cash Flow

(4.8)

8.1

(13.3)

(40.2)

9.0

23.4

(6.1)

11.9

Opening net debt/(cash)

 

 

(1.3)

3.7

(3.7)

9.0

52.0

41.3

17.9

24.0

FX

(0.2)

(0.5)

0.6

(2.7)

1.7

0.0

0.0

0.0

Other non-cash movements

0.1

(0.2)

0.0

(0.1)

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

3.7

(3.7)

9.0

52.0

41.3

17.9

24.0

12.1

Source: XP Power, Edison Investment Research

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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 £49,500 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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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