XP Power — Q3 output picks up; demand remains strong

XP Power (LSE: XPP)

Last close As at 13/04/2024

GBP10.92

22.00 (2.06%)

Market capitalisation

GBP259m

More on this equity

XP Power — Q3 output picks up; demand remains strong

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.

Katherine Thompson

Written by

Katherine Thompson

Director

XP Power

Q3 output picks up; demand remains strong

Q3 trading update

Tech hardware and equipment

11 October 2022

Price

1,588p

Market cap

£312m

$1.11:£1

Net debt (£m) at end Q322

118.7

Shares in issue

19.6m

Free float

90%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(17.3)

(43.7)

(68.2)

Rel (local)

(11.9)

(41.2)

(66.1)

52-week high/low

5,540p

1,576p

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

FY22 trading update

January 2023

Analyst

Katherine Thompson

+44 (0)203 077 5730

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*
(£m)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

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

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 2022 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.

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

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

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 2022 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.

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

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

More on XP Power

View All

Datatec — Mixed performance in H123, special dividend

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.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free