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Quarter-on-quarter revenue growth of 28% in Q322 confirmed that supply chain challenges have started to ease for XP. Despite the current uncertain economic environment, and reports of weaker consumer demand from some semiconductor companies, XP reported robust order intake and a book-to-bill of 1.27x for Q3, closing the quarter with a record order book. The discount to peers has widened, in our view reflecting uncertainty around demand and the Comet litigation case.
XP Power |
Q3 output picks up; demand remains strong |
Q3 trading update |
Tech hardware and equipment |
11 October 2022 |
Share price performance
Business description
Next events
Analyst
XP Power is a research client of Edison Investment Research Limited |
Quarter-on-quarter revenue growth of 28% in Q322 confirmed that supply chain challenges have started to ease for XP. Despite the current uncertain economic environment, and reports of weaker consumer demand from some semiconductor companies, XP reported robust order intake and a book-to-bill of 1.27x for Q3, closing the quarter with a record order book. The discount to peers has widened, in our view reflecting uncertainty around demand and the Comet litigation case.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
12/20 |
233.3 |
44.3 |
198.4 |
74 |
8.0 |
4.7 |
12/21 |
240.3 |
43.8 |
176.3 |
94 |
9.0 |
5.9 |
12/22e |
282.4 |
42.3 |
170.1 |
94 |
9.3 |
5.9 |
12/23e |
295.8 |
52.9 |
213.3 |
97 |
7.4 |
6.1 |
Note: *PBT and EPS (diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Supply chain issues eased in Q322
XP Power reported Q322 revenue of £79.4m, up 29% y-o-y (+15% y-o-y constant currency (cc) and +9% like-for-like cc) and 28% q-o-q, as supply chain conditions eased. Order intake of £101.1m was 4% higher y-o-y (down 8% cc and down 11% like-for-like cc) and up 11% q-o-q, resulting in a book-to-bill of 1.27x for Q322 and 1.45x year-to-date (9M22). Although some semiconductor companies have highlighted weaker consumer demand for certain products, XP notes that order intake remains robust across each end segment it serves. Net debt at the end of Q322 was £118.7m, up from £102.0m at the end of H122, reflecting the impact of the stronger dollar on US dollar-denominated debt as well as higher inventory. XP declared a Q3 dividend of 21p per share, flat y-o-y and in line with our expectation.
Outlook unchanged
The board’s expectations for FY22 are in line with market expectations and the record order book (c £320m at the end of Q3) provides good visibility into 2023. The board is considering next steps regarding the Comet legal action. Longer term, the board believes XP can grow ahead of its end markets, recover profitability and deliver strong cash generation. We have raised our FY22 revenue forecast by 4% to reflect the Q3 performance, and on higher base rates, we increase our net interest expense forecast, reducing FY22 EPS by 1.6% and FY23 by 3.5%.
Valuation: Discount has widened
On a P/E basis for FY22 and FY23, XP is trading at a 40–50% discount to both global power solution companies and UK electronics companies, with a dividend yield at the top end of the range. XP generates EBITDA and EBIT margins at the upper end of both peer groups and has a record order book entering Q422. In our view, with supply chain issues abating, concern is switching to the demand side of the equation. We expect that key drivers of the share price will include evidence over coming quarters that order intake is relatively stable despite increasing economic uncertainty, and that litigation has been resolved.
Exhibit 1: Financial summary
£'m |
2017 |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||||
Revenue |
|
|
166.8 |
195.1 |
199.9 |
233.3 |
240.3 |
282.4 |
295.8 |
Cost of Sales |
(89.2) |
(102.8) |
(109.8) |
(123.2) |
(132.0) |
(160.5) |
(160.3) |
||
Gross Profit |
77.6 |
92.3 |
90.1 |
110.1 |
108.3 |
122.0 |
135.5 |
||
EBITDA |
|
|
41.7 |
49.2 |
44.5 |
56.8 |
55.5 |
57.9 |
70.8 |
Normalised operating profit |
|
|
36.4 |
42.9 |
35.0 |
46.0 |
45.1 |
45.4 |
57.2 |
Amortisation of acquired intangibles |
(0.6) |
(2.8) |
(3.2) |
(3.2) |
(2.8) |
(4.2) |
(4.2) |
||
Exceptionals |
(3.3) |
(0.8) |
(5.1) |
(5.4) |
(12.6) |
(61.3) |
0.0 |
||
Share-based payments |
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 |
(20.1) |
53.0 |
||
Net Interest |
(0.3) |
(1.7) |
(2.7) |
(1.7) |
(1.3) |
(3.2) |
(4.3) |
||
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 |
(1.0) |
0.0 |
||
Profit Before Tax (norm) |
|
|
36.1 |
41.2 |
32.3 |
44.3 |
43.8 |
42.3 |
52.9 |
Profit Before Tax (reported) |
|
|
32.2 |
37.6 |
24.0 |
35.7 |
28.4 |
(24.2) |
48.7 |
Reported tax |
(3.6) |
(7.2) |
(3.2) |
(4.0) |
(5.4) |
4.6 |
(9.2) |
||
Profit After Tax (norm) |
28.8 |
33.9 |
27.9 |
39.2 |
35.4 |
34.2 |
42.9 |
||
Profit After Tax (reported) |
28.6 |
30.4 |
20.8 |
31.7 |
23.0 |
(19.6) |
39.5 |
||
Minority interests |
(0.3) |
(0.2) |
(0.3) |
(0.2) |
(0.4) |
(0.3) |
(0.3) |
||
Discontinued operations |
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 |
34.0 |
42.6 |
||
Net income (reported) |
28.3 |
30.2 |
20.5 |
31.5 |
22.6 |
(19.9) |
39.3 |
||
Basic ave. number of shares outstanding (m) |
19.1 |
19.1 |
19.2 |
19.3 |
19.5 |
19.6 |
19.6 |
||
EPS - basic normalised (p) |
|
|
149.4 |
176.1 |
144.1 |
201.8 |
179.4 |
173.1 |
217.1 |
EPS - diluted normalised (p) |
|
|
147.0 |
172.8 |
141.4 |
198.4 |
176.3 |
170.1 |
213.3 |
EPS - basic reported (p) |
|
|
148.3 |
157.8 |
107.0 |
163.0 |
115.8 |
(101.3) |
200.0 |
Dividend (p) |
78 |
85 |
55 |
74 |
94 |
94 |
97 |
||
Revenue growth (%) |
28.5 |
17.0 |
2.5 |
16.7 |
3.0 |
17.5 |
4.7 |
||
Gross Margin (%) |
46.5 |
47.3 |
45.1 |
47.2 |
45.1 |
43.2 |
45.8 |
||
EBITDA Margin (%) |
25.0 |
25.2 |
22.3 |
24.3 |
23.1 |
20.5 |
23.9 |
||
Normalised Operating Margin |
21.8 |
22.0 |
17.5 |
19.7 |
18.8 |
16.1 |
19.3 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
88.1 |
129.2 |
137.4 |
135.2 |
150.5 |
198.3 |
205.0 |
Intangible Assets |
63.9 |
97.7 |
99.6 |
98.8 |
108.8 |
144.2 |
146.0 |
||
Tangible Assets |
22.5 |
30.7 |
35.9 |
33.5 |
38.5 |
50.9 |
55.8 |
||
Investments & other |
1.7 |
0.8 |
1.9 |
2.9 |
3.2 |
3.2 |
3.2 |
||
Current Assets |
|
|
83.5 |
105.1 |
96.0 |
107.0 |
121.7 |
122.3 |
122.3 |
Stocks |
37.8 |
56.5 |
44.1 |
54.2 |
74.0 |
88.8 |
83.5 |
||
Debtors |
23.8 |
33.0 |
34.8 |
30.2 |
30.8 |
42.6 |
48.6 |
||
Cash & cash equivalents |
15.0 |
11.5 |
11.2 |
13.9 |
9.0 |
(16.9) |
(17.7) |
||
Other |
6.9 |
4.1 |
5.9 |
8.7 |
7.9 |
7.9 |
7.9 |
||
Current Liabilities |
|
|
(25.1) |
(26.8) |
(30.4) |
(34.7) |
(49.0) |
(48.0) |
(44.4) |
Creditors |
(21.4) |
(22.4) |
(25.2) |
(28.3) |
(44.7) |
(43.7) |
(40.1) |
||
Tax and social security |
(3.5) |
(4.2) |
(3.1) |
(4.9) |
(2.5) |
(2.5) |
(2.5) |
||
Short term borrowings |
0.0 |
0.0 |
(1.6) |
(1.5) |
(1.8) |
(1.8) |
(1.8) |
||
Other |
(0.2) |
(0.2) |
(0.5) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(29.6) |
(70.1) |
(64.1) |
(43.0) |
(50.8) |
(133.4) |
(123.2) |
Long term borrowings |
(24.0) |
(63.5) |
(57.3) |
(35.2) |
(39.9) |
(122.5) |
(112.3) |
||
Other long term liabilities |
(5.6) |
(6.6) |
(6.8) |
(7.8) |
(10.9) |
(10.9) |
(10.9) |
||
Net Assets |
|
|
116.9 |
137.4 |
138.9 |
164.5 |
172.4 |
139.2 |
159.7 |
Minority interests |
(0.9) |
(1.0) |
(0.7) |
(0.7) |
(0.9) |
(1.0) |
(1.0) |
||
Shareholders' equity |
|
|
116.0 |
136.4 |
138.2 |
163.8 |
171.5 |
138.3 |
158.7 |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
41.7 |
49.2 |
44.5 |
56.8 |
55.5 |
57.9 |
70.8 |
||
Working capital |
0.4 |
(21.6) |
10.6 |
(6.2) |
(4.0) |
(27.6) |
(4.3) |
||
Exceptional & other |
(6.3) |
3.2 |
(4.4) |
(1.7) |
(10.9) |
(53.8) |
0.0 |
||
Tax |
(6.1) |
(4.1) |
(4.5) |
(3.3) |
(4.2) |
4.6 |
(9.2) |
||
Net operating cash flow |
|
|
29.7 |
26.7 |
46.2 |
45.6 |
36.4 |
(18.9) |
57.3 |
Capex |
(10.1) |
(15.0) |
(16.3) |
(14.9) |
(21.9) |
(34.0) |
(23.0) |
||
Acquisitions/disposals |
(18.3) |
(35.4) |
0.0 |
(0.5) |
0.0 |
(32.3) |
0.0 |
||
Net interest |
(0.2) |
(1.5) |
(2.7) |
(1.3) |
(0.9) |
(3.2) |
(4.3) |
||
Equity financing |
(0.2) |
0.6 |
0.5 |
3.5 |
0.6 |
0.0 |
0.0 |
||
Dividends |
(14.2) |
(15.6) |
(17.2) |
(7.3) |
(18.4) |
(18.7) |
(19.0) |
||
Other |
0.0 |
0.0 |
(1.5) |
(1.7) |
(1.7) |
(1.7) |
(1.7) |
||
Net Cash Flow |
(13.3) |
(40.2) |
9.0 |
23.4 |
(5.9) |
(108.7) |
9.2 |
||
Opening net debt/(cash) |
|
|
(3.7) |
9.0 |
52.0 |
41.3 |
17.9 |
24.6 |
133.3 |
FX |
0.6 |
(2.7) |
1.7 |
0.0 |
(0.8) |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
9.0 |
52.0 |
41.3 |
17.9 |
24.6 |
133.3 |
124.1 |
Source: XP Power, Edison Investment Research
|
|
Datatec’s trading update indicated slowing momentum in H123, with geopolitical and economic headwinds and the strengthening dollar offsetting demand-driven technology tailwinds. Weakness was principally down to Logicalis LatAm. Management expects reported EPS of between 4.5 and 5.5 US cents, a year-on-year fall of between 13% and 29%, with underlying EPS expected to be between 3.0 and 4.0 US cents, a year-on-year fall of between 52% and 64%. Our estimates anticipate a year-on-year rise in FY23 revenues and earnings of 6% and 5% respectively, which now appears optimistic. We will review our estimates with the full H123 results, due on or around 3 November 2022. On the brighter side, Datatec will return the initial gross proceeds from the disposal of Analysys Mason to shareholders via a £135.1m cash dividend (ZAR12.50 per share), with a payment date of 5 December 2022. There is also a scrip alternative. Recognising the different factors affecting their underlying performance, management will break out Logicalis LatAm from Logicalis International from the H123 results onwards. This could also be seen as a statement of intent for unlocking the strategic value of Logicalis in the future.
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