Last close As at 05/08/2026
GBP17.92
▲ 6.00 (0.34%)
Market capitalisation
GBP501m
Research: TMT
The trading environment for XP Power has become more uncertain in recent months, with the US imposing higher tariffs on imports from China and threatening tariffs on imports from Mexico. At the same time, demand for semiconductors and consequently semiconductor equipment remains weak. We have revised down our revenue and EPS forecasts to reflect the combination of weaker demand and pressure on margins; despite this the valuation does not look challenging.
XP Power |
Reflecting a tougher trading environment |
Sector news flow |
Tech hardware & equipment |
20 June 2019 |
Share price performance
Business description
Next events
Analyst
XP Power is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||
The trading environment for XP Power has become more uncertain in recent months, with the US imposing higher tariffs on imports from China and threatening tariffs on imports from Mexico. At the same time, demand for semiconductors and consequently semiconductor equipment remains weak. We have revised down our revenue and EPS forecasts to reflect the combination of weaker demand and pressure on margins; despite this the valuation does not look challenging.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
12/17 |
166.8 |
36.1 |
147.0 |
78.0 |
15.4 |
3.5 |
12/18 |
195.1 |
41.2 |
172.8 |
85.0 |
13.1 |
3.8 |
12/19e |
199.8 |
38.4 |
160.8 |
88.0 |
14.1 |
3.9 |
12/20e |
209.0 |
41.6 |
173.8 |
92.0 |
13.0 |
4.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trade tariff situation worsens
In May, the US increased trade tariffs from 10% to 25% on a variety of goods imported from China, including XP’s power converters. At the same time, China has imposed tariffs on imports from the US. As XP manufactures in China and Vietnam, not all US imports of XP products incur the tariffs. XP is trying to mitigate the effect by qualifying more products in Vietnam, but this process takes time and in the meantime, the tariffs are creating uncertainty and pressure on margins. While the tariffs on Mexican imports to the US have been suspended for now, these could be reinstated and while not affecting XP directly, they could negatively affect demand for capital equipment in the US.
Semiconductor market still subdued
Reports from semiconductor production equipment manufacturers in recent months confirm that demand for semiconductor equipment remains weak. While logic and foundry chip manufacturers are seeing signs of improvement, the memory market continues to suffer from oversupply. The bottom in the market has not yet been confirmed and could shift out further into H219. On the back of the tariff situation and weaker demand for semiconductors, we have revised down our forecasts. In FY19, we now factor in a 20% decline in the semiconductor business and reduce growth in the rest of the business from 5% to 2.5%, which cuts revenues by 5% in FY19 and FY20 and reduces normalised EPS by 12.7% in FY19 and 9.7% in FY20. While our net debt forecast increases, we estimate that net debt/EBITDA will only increase from 0.8x to 1.0x by the end of FY19.
Valuation: Share price already factoring in weakness
The share price has pulled back from its year-to-date high of 2,670p at the end of April reflecting the weaker trading environment. On our revised forecasts, XP is trading on a P/E of 14.1x for FY19e and 13.0x FY20e, still at a substantial discount to power converter peers as well as UK electronics companies. XP’s dividend yield is also at the top end of the peer group range.
Changes to forecasts
Exhibit 1: Changes to forecasts
£m |
FY19e |
FY19e |
FY20e |
FY20e |
||||
Old |
New |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
|
Revenues |
210.3 |
199.8 |
(5.0%) |
2.4% |
220.0 |
209.0 |
(5.0%) |
4.6% |
Gross profit |
97.5 |
88.9 |
(8.9%) |
(3.7%) |
102.7 |
96.0 |
(6.5%) |
8.0% |
Gross margin |
46.4% |
44.5% |
(1.9%) |
(2.8%) |
46.7% |
45.9% |
(0.7%) |
1.5% |
EBITDA |
52.9 |
47.4 |
(10.5%) |
(3.8%) |
55.8 |
51.3 |
(7.9%) |
8.4% |
EBITDA margin |
25.2% |
23.7% |
(1.4%) |
(1.5%) |
25.3% |
24.6% |
(0.8%) |
0.9% |
Normalised operating profit |
45.7 |
40.2 |
(12.1%) |
(6.4%) |
47.8 |
43.3 |
(9.3%) |
7.9% |
Normalised operating profit margin |
21.7% |
20.1% |
(1.6%) |
(1.9%) |
21.7% |
20.7% |
(1.0%) |
0.6% |
Reported operating profit |
39.8 |
34.3 |
(13.9%) |
(12.8%) |
42.9 |
38.4 |
(10.3%) |
12.2% |
Reported operating margin |
18.9% |
17.1% |
(1.8%) |
(3.0%) |
19.5% |
18.4% |
(1.1%) |
1.2% |
Normalised PBT |
43.9 |
38.4 |
(12.6%) |
(6.8%) |
46.0 |
41.6 |
(9.6%) |
8.3% |
Reported PBT |
38.0 |
32.5 |
(14.6%) |
(13.6%) |
41.1 |
36.7 |
(10.8%) |
12.9% |
Normalised net income |
35.8 |
31.3 |
(12.7%) |
(7.1%) |
37.4 |
33.8 |
(9.7%) |
8.1% |
Reported net income |
30.9 |
26.4 |
(14.7%) |
(12.6%) |
33.4 |
29.8 |
(10.8%) |
13.0% |
Normalised basic EPS (p) |
187.7 |
163.9 |
(12.7%) |
(6.9%) |
196.1 |
177.1 |
(9.7%) |
8.1% |
Normalised diluted EPS (p) |
184.2 |
160.8 |
(12.7%) |
(6.9%) |
192.4 |
173.8 |
(9.7%) |
8.1% |
Reported basic EPS (p) |
162.1 |
138.2 |
(14.7%) |
(12.4%) |
175.2 |
156.2 |
(10.8%) |
13.0% |
Dividend per share (p) |
88.0 |
88.0 |
0.0% |
3.5% |
92.0 |
92.0 |
0.0% |
4.5% |
Net debt/(cash) |
43.3 |
49.0 |
13.3% |
(5.8%) |
31.8 |
37.1 |
16.7% |
(24.4%) |
Source: Edison Investment Research
Exhibit 2: Financial summary
£m |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||||||
Revenue |
|
|
93.9 |
101.1 |
101.1 |
109.7 |
129.8 |
166.8 |
195.1 |
199.8 |
209.0 |
Cost of Sales |
(49.0) |
(51.5) |
(51.0) |
(55.1) |
(67.8) |
(89.2) |
(102.8) |
(110.9) |
(113.0) |
||
Gross Profit |
44.9 |
49.6 |
50.1 |
54.6 |
62.0 |
77.6 |
92.3 |
88.9 |
96.0 |
||
EBITDA |
|
|
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.7 |
49.2 |
47.4 |
51.3 |
Normalised operating profit |
|
|
21.0 |
23.3 |
24.5 |
25.9 |
28.8 |
36.4 |
42.9 |
40.2 |
43.3 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
(0.4) |
(0.6) |
(2.8) |
(4.4) |
(4.4) |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
(0.3) |
(0.4) |
(3.3) |
(0.8) |
(1.0) |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(0.5) |
(0.5) |
||
Reported operating profit |
21.0 |
23.3 |
24.5 |
25.6 |
28.0 |
32.5 |
39.3 |
34.3 |
38.4 |
||
Net Interest |
(0.8) |
(0.4) |
(0.2) |
(0.2) |
(0.2) |
(0.3) |
(1.7) |
(1.8) |
(1.8) |
||
Joint ventures & associates |
0.0 |
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 |
0.0 |
||
Profit Before Tax (norm) |
|
|
20.2 |
22.9 |
24.3 |
25.7 |
28.6 |
36.1 |
41.2 |
38.4 |
41.6 |
Profit Before Tax (reported) |
|
|
20.2 |
22.9 |
24.3 |
25.4 |
27.8 |
32.2 |
37.6 |
32.5 |
36.7 |
Reported tax |
(4.5) |
(4.5) |
(4.8) |
(5.5) |
(6.3) |
(3.6) |
(7.2) |
(5.8) |
(6.6) |
||
Profit After Tax (norm) |
15.7 |
18.4 |
19.5 |
20.2 |
22.3 |
28.8 |
33.9 |
31.5 |
34.1 |
||
Profit After Tax (reported) |
15.7 |
18.4 |
19.5 |
19.9 |
21.5 |
28.6 |
30.4 |
26.6 |
30.1 |
||
Minority interests |
(0.2) |
(0.2) |
(0.1) |
(0.2) |
(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 |
0.0 |
||
Net income (normalised) |
15.5 |
18.2 |
19.4 |
20.0 |
22.1 |
28.5 |
33.7 |
31.3 |
33.8 |
||
Net income (reported) |
15.5 |
18.2 |
19.4 |
19.7 |
21.3 |
28.3 |
30.2 |
26.4 |
29.8 |
||
Basic ave. number of shares outstanding (m) |
19 |
19 |
19 |
19 |
19 |
19 |
19 |
19 |
19 |
||
EPS - basic normalised (p) |
|
|
81.7 |
95.8 |
102.1 |
105.3 |
116.2 |
149.4 |
176.1 |
163.9 |
177.1 |
EPS - diluted normalised (p) |
|
|
81.3 |
95.1 |
101.1 |
104.3 |
115.3 |
147.0 |
172.8 |
160.8 |
173.8 |
EPS - basic reported (p) |
|
|
81.7 |
95.8 |
102.1 |
103.7 |
112.0 |
148.3 |
157.8 |
138.2 |
156.2 |
Dividend (p) |
50 |
55 |
61 |
66 |
71 |
78 |
85 |
88 |
92 |
||
Revenue growth (%) |
(9.4) |
7.7 |
0.0 |
8.5 |
18.3 |
28.5 |
17.0 |
2.4 |
4.6 |
||
Gross Margin (%) |
47.8 |
49.1 |
49.6 |
49.8 |
47.8 |
46.5 |
47.3 |
44.5 |
45.9 |
||
EBITDA Margin (%) |
24.8 |
25.7 |
27.3 |
27.0 |
25.4 |
25.0 |
25.2 |
23.7 |
24.6 |
||
Normalised Operating Margin |
22.4 |
23.0 |
24.2 |
23.6 |
22.2 |
21.8 |
22.0 |
20.1 |
20.7 |
||
BALANCE SHEET |
|||||||||||
Fixed Assets |
|
|
52.8 |
53.3 |
56.1 |
65.4 |
73.2 |
88.1 |
129.2 |
138.1 |
140.7 |
Intangible Assets |
38.1 |
39.1 |
40.5 |
48.2 |
53.0 |
63.9 |
97.7 |
100.4 |
100.0 |
||
Tangible Assets |
13.2 |
12.7 |
14.4 |
16.1 |
19.1 |
22.5 |
30.7 |
36.9 |
39.9 |
||
Investments & other |
1.5 |
1.5 |
1.2 |
1.1 |
1.1 |
1.7 |
0.8 |
0.8 |
0.8 |
||
Current Assets |
|
|
39.3 |
42.2 |
47.0 |
53.5 |
65.7 |
83.5 |
105.1 |
104.2 |
110.6 |
Stocks |
19.8 |
20.4 |
25.2 |
28.7 |
32.2 |
37.8 |
56.5 |
57.7 |
55.7 |
||
Debtors |
14.2 |
15.4 |
16.0 |
17.5 |
21.5 |
23.8 |
33.0 |
32.8 |
34.4 |
||
Cash & cash equivalents |
4.1 |
5.0 |
3.8 |
4.9 |
9.2 |
15.0 |
11.5 |
9.5 |
16.4 |
||
Other |
1.2 |
1.4 |
2.0 |
2.4 |
2.8 |
6.9 |
4.1 |
4.1 |
4.1 |
||
Current Liabilities |
|
|
(20.2) |
(22.4) |
(18.6) |
(19.8) |
(25.8) |
(25.1) |
(26.8) |
(29.5) |
(30.3) |
Creditors |
(11.1) |
(12.7) |
(14.4) |
(14.6) |
(16.1) |
(21.4) |
(22.4) |
(25.1) |
(25.9) |
||
Tax and social security |
(1.6) |
(1.1) |
(1.7) |
(1.2) |
(3.3) |
(3.5) |
(4.2) |
(4.2) |
(4.2) |
||
Short term borrowings |
(7.3) |
(8.5) |
(2.5) |
(4.0) |
(5.5) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.2) |
(0.1) |
0.0 |
0.0 |
(0.9) |
(0.2) |
(0.2) |
(0.2) |
(0.2) |
||
Long Term Liabilities |
|
|
(10.6) |
(3.7) |
(4.2) |
(10.0) |
(6.2) |
(29.6) |
(70.1) |
(65.1) |
(60.1) |
Long term borrowings |
(7.4) |
0.0 |
0.0 |
(4.6) |
0.0 |
(24.0) |
(63.5) |
(58.5) |
(53.5) |
||
Other long term liabilities |
(3.2) |
(3.7) |
(4.2) |
(5.4) |
(6.2) |
(5.6) |
(6.6) |
(6.6) |
(6.6) |
||
Net Assets |
|
|
61.3 |
69.4 |
80.3 |
89.1 |
106.9 |
116.9 |
137.4 |
147.7 |
160.8 |
Minority interests |
(0.2) |
(0.2) |
(0.1) |
(0.8) |
(0.8) |
(0.9) |
(1.0) |
(1.1) |
(1.1) |
||
Shareholders' equity |
|
|
61.1 |
69.2 |
80.2 |
88.3 |
106.1 |
116.0 |
136.4 |
146.6 |
159.7 |
CASH FLOW |
|||||||||||
Op Cash Flow before WC and tax |
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.7 |
49.2 |
47.4 |
51.3 |
||
Working capital |
4.2 |
(0.3) |
(4.1) |
(4.6) |
(6.1) |
0.4 |
(21.6) |
1.6 |
1.4 |
||
Exceptional & other |
0.4 |
(0.5) |
1.9 |
0.6 |
5.1 |
(6.3) |
3.2 |
(1.0) |
0.0 |
||
Tax |
(4.3) |
(5.0) |
(3.6) |
(4.7) |
(4.1) |
(6.1) |
(4.1) |
(5.8) |
(6.6) |
||
Net operating cash flow |
|
|
23.6 |
20.2 |
21.8 |
21.0 |
27.9 |
29.7 |
26.7 |
42.1 |
46.1 |
Capex |
(4.7) |
(3.2) |
(5.8) |
(5.4) |
(6.8) |
(10.1) |
(15.0) |
(20.5) |
(15.0) |
||
Acquisitions/disposals |
(1.6) |
0.1 |
0.1 |
(8.3) |
0.1 |
(18.3) |
(35.4) |
0.0 |
0.0 |
||
Net interest |
(0.5) |
(0.3) |
(0.1) |
(0.1) |
(0.2) |
(0.2) |
(1.5) |
(1.8) |
(1.8) |
||
Equity financing |
(0.5) |
0.1 |
(0.2) |
0.0 |
0.2 |
(0.2) |
0.6 |
0.0 |
0.0 |
||
Dividends |
(9.1) |
(10.1) |
(11.0) |
(12.2) |
(13.1) |
(14.2) |
(15.6) |
(16.8) |
(17.4) |
||
Other |
0.5 |
0.2 |
0.1 |
0.2 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
7.7 |
7.0 |
4.9 |
(4.8) |
8.1 |
(13.3) |
(40.2) |
3.0 |
11.9 |
||
Opening net debt/(cash) |
|
|
18.6 |
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
9.0 |
52.0 |
49.0 |
FX |
0.3 |
0.1 |
(0.1) |
(0.2) |
(0.5) |
0.6 |
(2.7) |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
0.1 |
(0.2) |
0.0 |
(0.1) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
9.0 |
52.0 |
49.0 |
37.1 |
Source: XP Power, Edison Investment Research
|
|
For the purposes of the Takeover Code, Edison Investment Research is deemed to be connected with Premier Technical Services. Under Rule 20.1 Edison must not include any profit forecast, quantified financial benefits statement, asset valuation or estimate of other figures key to the offer, except to the extent that such forecasts, statements, valuations or estimates have been published prior to the offer period (as defined in the Takeover Code) by an offeror or the offeree company (as appropriate) in accordance with the requirements of the Code.
Consequently we have removed our estimates until the Offer Period ends.