Currency in GBP
Last close As at 26/05/2023
GBP21.35
▲ −75.00 (−3.39%)
Market capitalisation
GBP421m
Research: TMT
XP Power’s FY22 trading update confirmed that its H222 performance was significantly stronger than H122 as supply chain conditions improved. As expected, Q4 order intake moderated as customers adapted to longer lead times. The year-end order book provides good visibility for FY23 and management is optimistic on XP’s prospects for the year. We have revised our forecasts to reflect moderating order intake and higher levels of debt.
XP Power |
Strong H222 with good visibility for FY23 |
FY22 trading update |
Tech hardware and equipment |
12 January 2023 |
Share price performance
Business description
Next events
Analyst
XP Power is a research client of Edison Investment Research Limited |
XP Power’s FY22 trading update confirmed that its H222 performance was significantly stronger than H122 as supply chain conditions improved. As expected, Q4 order intake moderated as customers adapted to longer lead times. The year-end order book provides good visibility for FY23 and management is optimistic on XP’s prospects for the year. We have revised our forecasts to reflect moderating order intake and higher levels of debt.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
12/20 |
233.3 |
44.3 |
198.4 |
74 |
10.9 |
3.4 |
12/21 |
240.3 |
43.8 |
176.3 |
94 |
12.3 |
4.3 |
12/22e |
290.6 |
37.7 |
151.6 |
94 |
14.3 |
4.3 |
12/23e |
309.5 |
40.0 |
160.8 |
97 |
13.5 |
4.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong finish to FY22
Helped by improving supply chain conditions, XP generated Q422 revenue of £87.6m, +49% y-o-y (+30% constant currency (cc), +24% like-for-like (l-f-l)) and +10% q-o-q. FY22 revenue of £290.6m (+21% y-o-y, +11% cc, +5% l-f-l) compared to our £282.4m forecast. Management expects FY22 adjusted operating profit in the middle of the current consensus range (£41–46m). At £43.5m, this implies H222 operating profit of £28.5m (17.1% margin) versus £15.0m in H122 (12.1% margin). Year-end net debt of £152m was higher than our £133m, due to slower than expected inventory unwind, lower operating profit and higher net finance costs. Management has secured better banking covenant flexibility (net debt/ EBITDA <3.5x at end FY22 (up from <3x), reducing to <3.25x at end H123 and <3x at end FY23) and expects leverage to reduce significantly through FY23. The Q4 dividend is likely to be at least 36p, in line with our forecast.
Moderating order intake
After a period of very strong order intake as customers sought to manage long lead times through the supply chain, Q4 orders moderated, falling 32% q-o-q and 23% y-o-y (31% cc, 34% l-f-l). Order backlog at year-end of c £300m remains high and provides good visibility for FY23. Management expects visibility to return to more normal levels during 2023 (c four months historically). We have revised our FY22 forecasts to reflect expected revenue and operating profit. We have adjusted our FY23 forecasts to reflect inflation and higher net interest costs.
Valuation: Discount narrows
On a P/E basis for FY22 and FY23, XP is trading at a 20% 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 strong order book entering FY23. 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.
Changes to forecasts
Exhibit 1: Changes to forecasts
£m |
FY22e |
FY22e |
FY23e |
FY23e |
||||
Old |
New |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
|
Revenues |
282.4 |
290.6 |
2.9% |
20.9% |
295.8 |
309.5 |
4.6% |
6.5% |
Gross profit |
122.0 |
124.0 |
1.7% |
14.5% |
135.5 |
134.7 |
(0.6%) |
8.7% |
Gross margin |
43.2% |
42.7% |
(0.5%) |
(2.4%) |
45.8% |
43.5% |
(2.3%) |
0.9% |
EBITDA |
57.9 |
55.9 |
(3.5%) |
0.7% |
70.8 |
65.6 |
(7.4%) |
17.3% |
EBITDA margin |
20.5% |
19.2% |
(1.3%) |
(3.9%) |
23.9% |
21.2% |
(2.8%) |
1.9% |
Normalised operating profit |
45.4 |
43.4 |
(4.4%) |
(3.7%) |
57.2 |
50.0 |
(12.7%) |
15.1% |
Normalised operating margin |
16.1% |
14.9% |
(1.1%) |
(3.8%) |
19.3% |
16.1% |
(3.2%) |
1.2% |
Reported operating profit |
(20.1) |
(22.1) |
10.0% |
(174.4%) |
53.0 |
45.8 |
(13.7%) |
N/A |
Reported operating margin |
(7.1%) |
(7.6%) |
(0.5%) |
(20.0%) |
17.9% |
14.8% |
(3.1%) |
22.4% |
Normalised PBT |
42.3 |
37.7 |
(10.8%) |
(13.9%) |
52.9 |
40.0 |
(24.5%) |
6.0% |
Reported PBT |
(24.2) |
(28.8) |
18.8% |
(201.4%) |
48.7 |
35.8 |
(26.6%) |
N/A |
Normalised net income |
34.0 |
30.3 |
(10.9%) |
(13.4%) |
42.6 |
32.1 |
(24.6%) |
6.0% |
Reported net income |
(19.9) |
(23.6) |
18.6% |
(204.4%) |
39.3 |
28.8 |
(26.8%) |
N/A |
Normalised basic EPS (p) |
173.1 |
154.3 |
(10.9%) |
(14.0%) |
217.1 |
163.6 |
(24.6%) |
6.0% |
Normalised diluted EPS (p) |
170.1 |
151.6 |
(10.9%) |
(14.0%) |
213.3 |
160.8 |
(24.6%) |
6.0% |
Reported basic EPS (p) |
(101.3) |
(120.2) |
18.6% |
(203.8%) |
200.0 |
146.5 |
(26.8%) |
N/A |
Dividend per share (p) |
94.0 |
94.0 |
0.0% |
0.0% |
97.0 |
97.0 |
0.0% |
3.2% |
Net debt/(cash) |
133.3 |
151.8 |
13.9% |
517.2% |
124.1 |
140.8 |
13.5% |
(7.3%) |
Orders |
385.2 |
362.7 |
-5.8% |
5.6% |
310.6 |
276.4 |
-11.0% |
-23.8% |
Net debt/EBITDA (x) |
2.4 |
2.8 |
1.8 |
2.2 |
Source: Edison Investment Research
Exhibit 2: Financial summary
£m |
2017 |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||||
Revenue |
|
|
166.8 |
195.1 |
199.9 |
233.3 |
240.3 |
290.6 |
309.5 |
Cost of Sales |
(89.2) |
(102.8) |
(109.8) |
(123.2) |
(132.0) |
(166.6) |
(174.7) |
||
Gross Profit |
77.6 |
92.3 |
90.1 |
110.1 |
108.3 |
124.0 |
134.7 |
||
EBITDA |
|
|
41.7 |
49.2 |
44.5 |
56.8 |
55.5 |
55.9 |
65.6 |
Normalised operating profit |
|
|
36.4 |
42.9 |
35.0 |
46.0 |
45.1 |
43.4 |
50.0 |
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 |
(22.1) |
45.8 |
||
Net Interest |
(0.3) |
(1.7) |
(2.7) |
(1.7) |
(1.3) |
(5.7) |
(10.0) |
||
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 |
37.7 |
40.0 |
Profit Before Tax (reported) |
|
|
32.2 |
37.6 |
24.0 |
35.7 |
28.4 |
(28.8) |
35.8 |
Reported tax |
(3.6) |
(7.2) |
(3.2) |
(4.0) |
(5.4) |
5.4 |
(6.8) |
||
Profit After Tax (norm) |
28.8 |
33.9 |
27.9 |
39.2 |
35.4 |
30.5 |
32.4 |
||
Profit After Tax (reported) |
28.6 |
30.4 |
20.8 |
31.7 |
23.0 |
(23.3) |
29.0 |
||
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 |
30.3 |
32.1 |
||
Net income (reported) |
28.3 |
30.2 |
20.5 |
31.5 |
22.6 |
(23.6) |
28.8 |
||
Basic average 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 |
154.3 |
163.6 |
EPS - diluted normalised (p) |
|
|
147.0 |
172.8 |
141.4 |
198.4 |
176.3 |
151.6 |
160.8 |
EPS - basic reported (p) |
|
|
148.3 |
157.8 |
107.0 |
163.0 |
115.8 |
(120.2) |
146.5 |
Dividend (p) |
78 |
85 |
55 |
74 |
94 |
94 |
97 |
||
Revenue growth (%) |
28.5 |
17.0 |
2.5 |
16.7 |
3.0 |
20.9 |
6.5 |
||
Gross Margin (%) |
46.5 |
47.3 |
45.1 |
47.2 |
45.1 |
42.7 |
43.5 |
||
EBITDA Margin (%) |
25.0 |
25.2 |
22.3 |
24.3 |
23.1 |
19.2 |
21.2 |
||
Normalised Operating Margin (%) |
21.8 |
22.0 |
17.5 |
19.7 |
18.8 |
14.9 |
16.1 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
88.1 |
129.2 |
137.4 |
135.2 |
150.5 |
198.3 |
203.0 |
Intangible Assets |
63.9 |
97.7 |
99.6 |
98.8 |
108.8 |
144.2 |
144.0 |
||
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 |
162.6 |
161.5 |
Stocks |
37.8 |
56.5 |
44.1 |
54.2 |
74.0 |
94.9 |
95.3 |
||
Debtors |
23.8 |
33.0 |
34.8 |
30.2 |
30.8 |
43.8 |
43.2 |
||
Cash & cash equivalents |
15.0 |
11.5 |
11.2 |
13.9 |
9.0 |
9.6 |
12.6 |
||
Other |
6.9 |
4.1 |
5.9 |
8.7 |
7.9 |
14.3 |
10.3 |
||
Current Liabilities |
|
|
(25.1) |
(26.8) |
(30.4) |
(34.7) |
(49.0) |
(49.9) |
(51.7) |
Creditors |
(21.4) |
(22.4) |
(25.2) |
(28.3) |
(44.7) |
(45.6) |
(47.4) |
||
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) |
(178.4) |
(170.2) |
Long term borrowings |
(24.0) |
(63.5) |
(57.3) |
(35.2) |
(39.9) |
(167.5) |
(159.3) |
||
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 |
132.5 |
142.5 |
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 |
131.6 |
141.5 |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
41.7 |
49.2 |
44.5 |
56.8 |
55.5 |
55.9 |
65.6 |
||
Working capital |
0.4 |
(21.6) |
10.6 |
(6.2) |
(4.0) |
(33.0) |
2.0 |
||
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) |
(1.0) |
(2.8) |
||
Net operating cash flow |
|
|
29.7 |
26.7 |
46.2 |
45.6 |
36.4 |
(31.9) |
64.8 |
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) |
(5.7) |
(10.0) |
||
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) |
(124.2) |
11.1 |
||
Opening net debt/(cash) |
|
|
(3.7) |
9.0 |
52.0 |
41.3 |
17.9 |
24.6 |
151.8 |
FX |
0.6 |
(2.7) |
1.7 |
0.0 |
(0.8) |
(3.0) |
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 |
151.8 |
140.8 |
Source: XP Power, Edison Investment Research
|
|
Research: Investment Companies
Worldwide Healthcare Trust’s (WWH’s) two co-managers, Sven Borho and Trevor Polischuk at specialist investor OrbiMed, remain positive on the prospects for the global healthcare industry. This view is based on favourable company fundamentals, increased clarity on US drug pricing and an upturn in merger and acquisition (M&A) activity, as pharma companies are using their strong balance sheets to bolster their product pipelines. The trust’s portfolio remains skewed to emerging (smaller-cap) biotech and emerging market stocks rather than large-cap pharma companies. While this strategy has been detrimental to WWH’s relative performance in recent quarters, this active approach has been successful over the longer term.
Get access to the very latest content matched to your personal investment style.