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GBP501m
Research: TMT
XP Power’s Q3 trading update confirms strong revenue growth, despite currency headwinds, and good progress in design wins across all end markets. Q3 bookings growth has moderated slightly, partially reflecting uncertainty in the semiconductor sector over capex plans, but management is confident of achieving expectations set at its recent interim results; we leave our forecasts unchanged.
XP Power |
Q3 trading supports FY18 outlook |
Q3 trading update |
Tech hardware & equipment |
8 October 2018 |
Share price performance
Business description
Next events
Analysts
XP Power is a research client of Edison Investment Research Limited |
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XP Power’s Q3 trading update confirms strong revenue growth, despite currency headwinds, and good progress in design wins across all end markets. Q3 bookings growth has moderated slightly, partially reflecting uncertainty in the semiconductor sector over capex plans, but management is confident of achieving expectations set at its recent interim results; we leave our forecasts unchanged.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
129.8 |
28.6 |
115.3 |
71.0 |
26.0 |
2.4 |
12/17 |
166.8 |
36.1 |
147.0 |
78.0 |
20.4 |
2.6 |
12/18e |
198.9 |
42.2 |
177.6 |
82.0 |
16.9 |
2.7 |
12/19e |
219.4 |
47.2 |
198.4 |
85.0 |
15.1 |
2.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong 9M like-for-like revenue and bookings growth
XP received orders worth £153.3m in the nine months to 30 September 2018 (9M18), +11% y-o-y, +18% in constant currency and +8% on a like-for-like basis (excluding currency and acquisitions). In 9M18, the company reported revenues of £146.1m, +18% y-o-y, +24% in constant currency and 11% on a like-for-like basis; this equates to a book-to-bill of 1.05x for the period. As noted in July, the company has seen a shortage of components such as capacitors and has built its safety inventory to cope with extended lead times – this is factored into our gross margin assumptions for H218 and resulted in a small increase in net debt to £49.3m from £46.5m at the end of H118. The Q3 dividend of 19p is in line with our forecast.
Q3 order intake reflects moderation in demand
The 9M18 results imply Q3 order growth of 18% y-o-y/3% q-o-q and Q3 revenue growth of 21% y-o-y/14% q-o-q, with a book-to-bill of 0.98x. Considering that Q3 includes a full three months for the Glassman acquisition versus one month in Q2, this highlights a slight slowing in order growth which we assume relates to semiconductor production equipment (SPE) customers. Despite this, the company continues to see market share gains and good design win momentum across all end markets and anticipates that it will meet expectations as outlined at the end of July. We leave our estimates unchanged.
Valuation: Factors in moderating bookings growth
In the last three months, the stock has pulled back 16%, we believe in part due to concerns over weakening demand from SPE customers. We estimate that XP currently generates c 25% of revenues from the SPE sector so is not immune to weakening sector demand, but market share gains as well as robust demand in its other end markets should reduce the potential exposure. On a P/E basis, XP is trading at a premium to global power converter companies and at a small discount to UK electronics companies, with a dividend yield at the top end of the range. XP generates EBITDA and EBIT margins at the top end of its peer group.
Exhibit 1: Financial summary
£'m |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||||
Revenue |
|
|
93.9 |
101.1 |
101.1 |
109.7 |
129.8 |
166.8 |
198.9 |
219.4 |
Cost of Sales |
(49.0) |
(51.5) |
(51.0) |
(55.1) |
(67.8) |
(89.2) |
(108.1) |
(119.0) |
||
Gross Profit |
44.9 |
49.6 |
50.1 |
54.6 |
62.0 |
77.6 |
90.8 |
100.4 |
||
EBITDA |
|
|
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.7 |
49.2 |
55.0 |
Normalised operating profit |
|
|
21.0 |
23.3 |
24.5 |
25.9 |
28.8 |
36.4 |
43.5 |
49.0 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
(0.4) |
(0.6) |
(1.4) |
(1.2) |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
(0.3) |
(0.4) |
(3.3) |
(0.4) |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
21.0 |
23.3 |
24.5 |
25.6 |
28.0 |
32.5 |
41.7 |
47.8 |
||
Net Interest |
(0.8) |
(0.4) |
(0.2) |
(0.2) |
(0.2) |
(0.3) |
(1.4) |
(1.8) |
||
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) |
|
|
20.2 |
22.9 |
24.3 |
25.7 |
28.6 |
36.1 |
42.2 |
47.2 |
Profit Before Tax (reported) |
|
|
20.2 |
22.9 |
24.3 |
25.4 |
27.8 |
32.2 |
40.4 |
46.0 |
Reported tax |
(4.5) |
(4.5) |
(4.8) |
(5.5) |
(6.3) |
(3.6) |
(7.3) |
(8.3) |
||
Profit After Tax (norm) |
15.7 |
18.4 |
19.5 |
20.2 |
22.3 |
28.8 |
34.7 |
38.7 |
||
Profit After Tax (reported) |
15.7 |
18.4 |
19.5 |
19.9 |
21.5 |
28.6 |
33.1 |
37.7 |
||
Minority interests |
(0.2) |
(0.2) |
(0.1) |
(0.2) |
(0.2) |
(0.3) |
(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) |
15.5 |
18.2 |
19.4 |
20.0 |
22.1 |
28.5 |
34.4 |
38.5 |
||
Net income (reported) |
15.5 |
18.2 |
19.4 |
19.7 |
21.3 |
28.3 |
32.9 |
37.5 |
||
Basic average number of shares outstanding (m) |
19 |
19 |
19 |
19 |
19 |
19 |
19 |
19 |
||
EPS - basic normalised (p) |
|
|
81.67 |
95.84 |
102.12 |
105.28 |
116.22 |
149.36 |
180.36 |
201.53 |
EPS - diluted normalised (p) |
|
|
81.35 |
95.05 |
101.07 |
104.32 |
115.33 |
147.00 |
177.57 |
198.42 |
EPS - basic reported (p) |
|
|
81.67 |
95.84 |
102.12 |
103.70 |
112.02 |
148.31 |
172.08 |
196.30 |
Dividend (p) |
50 |
55 |
61 |
66 |
71 |
78 |
82 |
85 |
||
Revenue growth (%) |
(9.4) |
7.7 |
0.0 |
8.5 |
18.3 |
28.5 |
19.2 |
10.3 |
||
Gross Margin (%) |
47.8 |
49.1 |
49.6 |
49.8 |
47.8 |
46.5 |
45.6 |
45.7 |
||
EBITDA Margin (%) |
24.8 |
25.7 |
27.3 |
27.0 |
25.4 |
25.0 |
24.8 |
25.1 |
||
Normalised Operating Margin |
22.4 |
23.0 |
24.2 |
23.6 |
22.2 |
21.8 |
21.9 |
22.3 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
52.8 |
53.3 |
56.1 |
65.4 |
73.2 |
88.1 |
127.2 |
131.2 |
Intangible Assets |
38.1 |
39.1 |
40.5 |
48.2 |
53.0 |
63.9 |
92.3 |
93.8 |
||
Tangible Assets |
13.2 |
12.7 |
14.4 |
16.1 |
19.1 |
22.5 |
33.2 |
35.7 |
||
Investments & other |
1.5 |
1.5 |
1.2 |
1.1 |
1.1 |
1.7 |
1.7 |
1.7 |
||
Current Assets |
|
|
39.3 |
42.2 |
47.0 |
53.5 |
65.7 |
83.5 |
93.2 |
108.2 |
Stocks |
19.8 |
20.4 |
25.2 |
28.7 |
32.2 |
37.8 |
48.0 |
52.8 |
||
Debtors |
14.2 |
15.4 |
16.0 |
17.5 |
21.5 |
23.8 |
30.0 |
33.1 |
||
Cash & cash equivalents |
4.1 |
5.0 |
3.8 |
4.9 |
9.2 |
15.0 |
11.2 |
18.3 |
||
Other |
1.2 |
1.4 |
2.0 |
2.4 |
2.8 |
6.9 |
4.0 |
4.0 |
||
Current Liabilities |
|
|
(20.2) |
(22.4) |
(18.6) |
(19.8) |
(25.8) |
(25.1) |
(29.1) |
(31.6) |
Creditors |
(11.1) |
(12.7) |
(14.4) |
(14.6) |
(16.1) |
(21.4) |
(25.4) |
(27.9) |
||
Tax and social security |
(1.6) |
(1.1) |
(1.7) |
(1.2) |
(3.3) |
(3.5) |
(3.5) |
(3.5) |
||
Short term borrowings |
(7.3) |
(8.5) |
(2.5) |
(4.0) |
(5.5) |
0.0 |
0.0 |
0.0 |
||
Other |
(0.2) |
(0.1) |
0.0 |
0.0 |
(0.9) |
(0.2) |
(0.2) |
(0.2) |
||
Long Term Liabilities |
|
|
(10.6) |
(3.7) |
(4.2) |
(10.0) |
(6.2) |
(29.6) |
(61.6) |
(56.6) |
Long term borrowings |
(7.4) |
0.0 |
0.0 |
(4.6) |
0.0 |
(24.0) |
(56.0) |
(51.0) |
||
Other long term liabilities |
(3.2) |
(3.7) |
(4.2) |
(5.4) |
(6.2) |
(5.6) |
(5.6) |
(5.6) |
||
Net Assets |
|
|
61.3 |
69.4 |
80.3 |
89.1 |
106.9 |
116.9 |
129.6 |
151.1 |
Minority interests |
(0.2) |
(0.2) |
(0.1) |
(0.8) |
(0.8) |
(0.9) |
(1.0) |
(1.1) |
||
Shareholders' equity |
|
|
61.1 |
69.2 |
80.2 |
88.3 |
106.1 |
116.0 |
128.6 |
150.0 |
CASH FLOW |
||||||||||
Op Cash Flow before WC and tax |
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.7 |
49.2 |
55.0 |
||
Working capital |
4.2 |
(0.3) |
(4.1) |
(4.6) |
(6.1) |
0.4 |
(12.3) |
(5.4) |
||
Exceptional & other |
0.4 |
(0.5) |
1.9 |
0.6 |
5.1 |
(6.3) |
(0.4) |
0.0 |
||
Tax |
(4.3) |
(5.0) |
(3.6) |
(4.7) |
(4.1) |
(6.1) |
(4.4) |
(8.3) |
||
Net operating cash flow |
|
|
23.6 |
20.2 |
21.8 |
21.0 |
27.9 |
29.7 |
32.1 |
41.3 |
Capex |
(4.7) |
(3.2) |
(5.8) |
(5.4) |
(6.8) |
(10.1) |
(15.5) |
(11.2) |
||
Acquisitions/disposals |
(1.6) |
0.1 |
0.1 |
(8.3) |
0.1 |
(18.3) |
(35.6) |
0.0 |
||
Net interest |
(0.5) |
(0.3) |
(0.1) |
(0.1) |
(0.2) |
(0.2) |
(1.4) |
(1.8) |
||
Equity financing |
(0.5) |
0.1 |
(0.2) |
0.0 |
0.2 |
(0.2) |
0.0 |
0.0 |
||
Dividends |
(9.1) |
(10.1) |
(11.0) |
(12.2) |
(13.1) |
(14.2) |
(15.5) |
(16.2) |
||
Other |
0.5 |
0.2 |
0.1 |
0.2 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
7.7 |
7.0 |
4.9 |
(4.8) |
8.1 |
(13.3) |
(35.8) |
12.1 |
||
Opening net debt/(cash) |
|
|
18.6 |
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
9.0 |
44.8 |
FX |
0.3 |
0.1 |
(0.1) |
(0.2) |
(0.5) |
0.7 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
0.1 |
(0.2) |
(0.1) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
9.0 |
44.8 |
32.7 |
Source: XP Power, Edison Investment Research
Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com DISCLAIMER |
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