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GBP501m
Research: TMT
XP Power’s Q1 trading update confirmed continuing positive momentum in order intake. Orders received were 9% higher on a year-on-year and quarter-on-quarter basis. With Q1 revenue growth of 18% y-o-y, book-to-bill remained strong at 1.1x. We have revised our revenue forecasts to take account of the higher than expected performance in Q1, resulting in an upgrade to forecast normalised EPS of 7.7% in FY18 and 7.6% in FY19.
XP Power |
Strong Q1 drives forecast upgrades |
Q1 trading update |
Tech hardware & equipment |
13 April 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 Q1 trading update confirmed continuing positive momentum in order intake. Orders received were 9% higher on a year-on-year and quarter-on-quarter basis. With Q1 revenue growth of 18% y-o-y, book-to-bill remained strong at 1.1x. We have revised our revenue forecasts to take account of the higher than expected performance in Q1, resulting in an upgrade to forecast normalised EPS of 7.7% in FY18 and 7.6% in FY19.
Year end |
Revenue (£m) |
PBT* |
Dil. EPS* |
DPS |
P/E |
Yield |
12/16 |
129.8 |
28.6 |
115.3 |
71.0 |
30.5 |
2.0 |
12/17 |
166.8 |
36.1 |
147.0 |
78.0 |
23.9 |
2.2 |
12/18e |
186.0 |
40.3 |
171.1 |
82.0 |
20.6 |
2.3 |
12/19e |
195.1 |
42.9 |
182.5 |
85.0 |
19.3 |
2.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q118 trading: Revenues and bookings up strongly
XP Power reported revenues of £46.6m in Q118, up 18% y-o-y, up 28% on a constant currency basis and up 17% on a like-for-like basis. Order intake of £51.2m was 9% higher y-o-y (+19% constant currency, +12% like-for-like) and 9% higher q-o-q. Book-to-bill remained strong at 1.1x. Net debt at quarter-end was £6.8m, down from £9.0m at end FY17. The company announced a 16p per share dividend for Q118, in line with our forecast.
Upgrading forecasts
Management’s expectations for full year performance remain unchanged. We have raised our forecasts to reflect the stronger than expected trading in Q1. We lift revenue forecasts by 5.8% for FY18 and FY19, based on constant currency revenue growth of 22% in FY18 (which includes the full year effect of Comdel) and 5% in FY19. This results in an increase in operating profit of 7.5% in FY18 and 7.4% in FY19 and normalised EPS of 7.7% in FY18 and 7.6% in FY19. We forecast that XP will move into a net cash position by the end of FY19, increasing our forecast from £4.1m to £6.2m.
Valuation: Reflects consistently profitable growth
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. We see scope for upgrades to earnings estimates from cross-selling and further market share gains in healthcare. The company is well funded to make further acquisitions, while maintaining its strong operating profitability.
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 |
186.0 |
195.1 |
Cost of Sales |
(49.0) |
(51.5) |
(51.0) |
(55.1) |
(67.8) |
(89.2) |
(100.0) |
(104.9) |
||
Gross Profit |
44.9 |
49.6 |
50.1 |
54.6 |
62.0 |
77.6 |
86.0 |
90.2 |
||
EBITDA |
|
|
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.7 |
46.6 |
49.5 |
Normalised operating profit |
|
|
21.0 |
23.3 |
24.5 |
25.9 |
28.8 |
36.4 |
40.9 |
43.5 |
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) |
0.0 |
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 |
39.5 |
42.3 |
||
Net Interest |
(0.8) |
(0.4) |
(0.2) |
(0.2) |
(0.2) |
(0.3) |
(0.6) |
(0.6) |
||
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 |
40.3 |
42.9 |
Profit Before Tax (reported) |
|
|
20.2 |
22.9 |
24.3 |
25.4 |
27.8 |
32.2 |
38.9 |
41.7 |
Reported tax |
(4.5) |
(4.5) |
(4.8) |
(5.5) |
(6.3) |
(3.6) |
(6.6) |
(7.1) |
||
Profit After Tax (norm) |
15.7 |
18.4 |
19.5 |
20.2 |
22.3 |
28.8 |
33.4 |
35.6 |
||
Profit After Tax (reported) |
15.7 |
18.4 |
19.5 |
19.9 |
21.5 |
28.6 |
32.2 |
34.6 |
||
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 |
33.2 |
35.4 |
||
Net income (reported) |
15.5 |
18.2 |
19.4 |
19.7 |
21.3 |
28.3 |
32.0 |
34.4 |
||
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 |
173.78 |
185.41 |
EPS - diluted normalised (p) |
|
|
81.35 |
95.05 |
101.07 |
104.32 |
115.33 |
147.00 |
171.09 |
182.54 |
EPS - basic reported (p) |
|
|
81.67 |
95.84 |
102.12 |
103.70 |
112.02 |
148.31 |
167.60 |
180.17 |
Dividend (p) |
50 |
55 |
61 |
66 |
71 |
78 |
82 |
85 |
||
Revenue growth (%) |
(9.4) |
7.7 |
0.0 |
8.5 |
18.3 |
28.5 |
11.5 |
4.9 |
||
Gross Margin (%) |
47.8 |
49.1 |
49.6 |
49.8 |
47.8 |
46.5 |
46.2 |
46.2 |
||
EBITDA Margin (%) |
24.8 |
25.7 |
27.3 |
27.0 |
25.4 |
25.0 |
25.0 |
25.4 |
||
Normalised Operating Margin |
22.4 |
23.0 |
24.2 |
23.6 |
22.2 |
21.8 |
22.0 |
22.3 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
52.8 |
53.3 |
56.1 |
65.4 |
73.2 |
88.1 |
96.5 |
100.5 |
Intangible Assets |
38.1 |
39.1 |
40.5 |
48.2 |
53.0 |
63.9 |
65.2 |
66.7 |
||
Tangible Assets |
13.2 |
12.7 |
14.4 |
16.1 |
19.1 |
22.5 |
29.6 |
32.1 |
||
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 |
89.2 |
99.6 |
Stocks |
19.8 |
20.4 |
25.2 |
28.7 |
32.2 |
37.8 |
43.9 |
46.0 |
||
Debtors |
14.2 |
15.4 |
16.0 |
17.5 |
21.5 |
23.8 |
28.0 |
29.4 |
||
Cash & cash equivalents |
4.1 |
5.0 |
3.8 |
4.9 |
9.2 |
15.0 |
13.3 |
20.2 |
||
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) |
(27.4) |
(28.4) |
Creditors |
(11.1) |
(12.7) |
(14.4) |
(14.6) |
(16.1) |
(21.4) |
(23.7) |
(24.7) |
||
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) |
(24.6) |
(19.6) |
Long term borrowings |
(7.4) |
0.0 |
0.0 |
(4.6) |
0.0 |
(24.0) |
(19.0) |
(14.0) |
||
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 |
133.6 |
152.0 |
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 |
132.6 |
150.9 |
CASH FLOW |
||||||||||
Op Cash Flow before WC and tax |
23.3 |
26.0 |
27.6 |
29.7 |
33.0 |
41.7 |
46.6 |
49.5 |
||
Working capital |
4.2 |
(0.3) |
(4.1) |
(4.6) |
(6.1) |
0.4 |
(8.0) |
(2.5) |
||
Exceptional & other |
0.4 |
(0.5) |
1.9 |
0.6 |
5.1 |
(6.3) |
0.0 |
0.0 |
||
Tax |
(4.3) |
(5.0) |
(3.6) |
(4.7) |
(4.1) |
(6.1) |
(3.7) |
(7.1) |
||
Net operating cash flow |
|
|
23.6 |
20.2 |
21.8 |
21.0 |
27.9 |
29.7 |
34.9 |
40.0 |
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) |
0.0 |
0.0 |
||
Net interest |
(0.5) |
(0.3) |
(0.1) |
(0.1) |
(0.2) |
(0.2) |
(0.6) |
(0.6) |
||
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) |
3.3 |
11.9 |
||
Opening net debt/(cash) |
|
|
18.6 |
10.6 |
3.5 |
(1.3) |
3.7 |
(3.7) |
9.0 |
5.7 |
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 |
5.7 |
(6.2) |
Source: XP Power, Edison Investment Research
|
|
Research: Energy & Resources
SDX Energy has announced results from the Ibn Yunus-1 well at South Disouq, Egypt (SDX 55%). Ibn Yunus-1 is the second consecutive gas discovery at South Disouq (after SD-1X) and encountered 100.8 net meters of conventional pay in the Abu Madi horizon, with average porosity of 28.5%. The well came in on prognosis but with a reservoir thickness and quality above pre-drill expectations. We expect to de-risk Ibn Yunus on flow testing; however, indicatively moving to an 80% chance of success (equivalent to our risking for SD-1X) from 32% would add 4.4p/share to our RENAV in our 90bcf recoverable case. We recently published a detailed update on our view of the group valuation, which stands at a core NAV of 58.3p/share and RENAV of 65.6p/share.