XP Power — Update 11 April 2016

XP Power (LSE: XPP)

Last close As at 17/04/2024

GBP10.56

6.00 (0.57%)

Market capitalisation

GBP251m

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Research: TMT

XP Power — Update 11 April 2016

XP Power

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

XP Power

Positive Q1 trading update

Q1 trading update

Tech hardware & equipment

11 April 2016

Price

1,577p

Market cap

£300m

$1.41:€1.24:£1

Net debt (£m) at end Q116

3.7

Shares in issue

19.0m

Free float

85.6%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.3)

5.9

8.6

Rel (local)

(4.5)

1.8

19.7

52-week high/low

1733p

1421p

Business description

XP Power is a developer and designer of power control solutions with production facilities in China, Vietnam and the US, and design, service and sales teams across Europe, the US and Asia.

Next events

H1 results

22 July 2016

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

XP Power is a research client of Edison Investment Research Limited

XP confirmed that Q116 revenues and orders grew year-on-year on both a reported and constant currency basis, remaining at the strong level achieved in the previous quarter. Trading continues to support management’s expectations for revenue growth in 2016 and, accordingly, we leave our estimates unchanged.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

101.1

24.3

101.1

61.0

15.6

3.9

12/15

109.7

25.7

104.3

66.0

15.1

4.2

12/16e

122.2

27.0

105.3

69.0

15.0

4.4

12/17e

129.6

29.8

116.6

73.0

13.5

4.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Q116 trading a continuation of Q415

XP saw encouraging trading in Q116: revenues grew 10% y-o-y to £28.2m (+6% constant currency) and 1% from the previous quarter. Order intake of £30.3m was marginally higher than the Q415 intake and 9% higher than a year ago (+4% constant currency). Net debt of £3.7m at the end of Q116 was flat compared to the end of FY15. The Q1 dividend of 14p was in line with our expectations and 8% higher than a year ago. It will be paid on 8 July to shareholders as at 17 June.

Outlook remains positive; no change to forecasts

The strong order inflow in Q116 supports management’s expectations for revenue growth in 2016. The integration of the recent EMCO acquisition continues on track – the business was shifted onto XP’s ERP system on 1 January and training of the salesforce is now complete, paving the way for cross-selling opportunities. We make no change to forecasts at this point – we note that there is upside potential to revenues from the continued weakness of sterling versus the dollar, although this would have a more limited effect at the net income level.

Valuation: Recent investment supports growth

While the economic outlook is mixed, with slower growth forecast in the US and China, we believe that XP should benefit from its recent investment in engineering and sales resource, as well as acquisitions in the US and South Korea. Strong forecast cash generation should enable the company to invest in further growth, either through internal product development or through the bolt-on acquisitions it continues to evaluate. XP now trades on a P/E of 15.0x FY16e and 13.5x FY17e normalised EPS, with a forecast dividend yield of 4.4% in FY16 and 4.6% in FY17. Competitor power converter companies are trading at around 19x FY16e EPS on EBITDA margins of c 16% versus XP’s 25.6% forecast EBITDA margin. The UK distributors are trading on 12-20x FY16e EPS, on c 9% EBITDA margins. Based on XP’s superior margins, the company is undervalued versus peers, and is further supported by its dividend yield.

Exhibit 1: Financial summary

£m

2012

2013

2014

2015

2016e

2017e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

93.9

101.1

101.1

109.7

122.2

129.6

Cost of Sales

(49.0)

(51.5)

(51.0)

(55.1)

(61.1)

(64.6)

Gross Profit

44.9

49.6

50.1

54.6

61.1

65.0

EBITDA

 

 

23.3

26.0

27.6

29.7

31.2

34.2

Normalised operating profit

 

 

21.0

23.3

24.5

25.9

27.2

30.1

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

(0.3)

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

21.0

23.3

24.5

25.6

27.2

30.1

Net Interest

(0.8)

(0.4)

(0.2)

(0.2)

(0.3)

(0.3)

Joint ventures & associates (post tax)

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

Profit Before Tax (norm)

 

 

20.2

22.9

24.3

25.7

27.0

29.8

Profit Before Tax (reported)

 

 

20.2

22.9

24.3

25.4

27.0

29.8

Reported tax

(4.5)

(4.5)

(4.8)

(5.5)

(6.5)

(7.2)

Profit After Tax (norm)

15.7

18.4

19.5

20.2

20.5

22.7

Profit After Tax (reported)

15.7

18.4

19.5

19.9

20.5

22.7

Minority interests

(0.2)

(0.2)

(0.1)

(0.2)

(0.3)

(0.3)

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

15.5

18.2

19.4

20.0

20.2

22.4

Net income (reported)

15.5

18.2

19.4

19.7

20.2

22.4

Basic average number of shares outstanding (m)

19

19

19

19

19

19

EPS - basic normalised (p)

 

 

81.67

95.84

102.12

105.28

106.45

117.78

EPS - diluted normalised (p)

 

 

81.35

95.05

101.07

104.32

105.34

116.56

EPS - basic reported (p)

 

 

81.67

95.84

102.12

103.70

106.45

117.78

Dividend (p)

50

55

61

66

69

73

Revenue growth (%)

(9.4)

7.7

0.0

8.5

11.4

6.0

Gross Margin (%)

47.8

49.1

49.6

49.8

50.0

50.2

EBITDA Margin (%)

24.8

25.7

27.3

27.0

25.6

26.4

Normalised Operating Margin

22.4

23.0

24.2

23.6

22.3

23.2

BALANCE SHEET

Fixed Assets

 

 

52.8

53.3

56.1

65.4

66.3

67.1

Intangible Assets

38.1

39.1

40.5

48.2

49.0

49.7

Tangible Assets

13.2

12.7

14.4

16.1

16.2

16.3

Investments & other

1.5

1.5

1.2

1.1

1.1

1.1

Current Assets

 

 

39.3

42.2

47.0

53.5

58.2

62.8

Stocks

19.8

20.4

25.2

28.7

30.1

31.8

Debtors

14.2

15.4

16.0

17.5

18.8

19.9

Cash & cash equivalents

4.1

5.0

3.8

4.9

6.9

8.7

Other

1.2

1.4

2.0

2.4

2.4

2.4

Current Liabilities

 

 

(20.2)

(22.4)

(18.6)

(19.8)

(22.6)

(19.0)

Creditors

(11.1)

(12.7)

(14.4)

(14.6)

(16.3)

(17.2)

Tax and social security

(1.6)

(1.1)

(1.7)

(1.2)

(1.2)

(1.2)

Short term borrowings

(7.3)

(8.5)

(2.5)

(4.0)

(5.1)

(0.6)

Other

(0.2)

(0.1)

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(10.6)

(3.7)

(4.2)

(10.0)

(5.4)

(5.4)

Long term borrowings

(7.4)

0.0

0.0

(4.6)

0.0

0.0

Other long term liabilities

(3.2)

(3.7)

(4.2)

(5.4)

(5.4)

(5.4)

Net Assets

 

 

61.3

69.4

80.3

89.1

96.4

105.4

Minority interests

(0.2)

(0.2)

(0.1)

(0.8)

(0.9)

(1.0)

Shareholders' equity

 

 

61.1

69.2

80.2

88.3

95.5

104.4

CASH FLOW

Op Cash Flow before WC and tax

23.3

26.0

27.6

29.7

31.2

34.2

Working capital

4.2

(0.3)

(4.1)

(4.6)

(1.0)

(1.9)

Exceptional & other

0.4

(0.5)

1.9

0.6

0.0

0.0

Tax

(4.3)

(5.0)

(3.6)

(4.7)

(6.5)

(7.2)

Net operating cash flow

 

 

23.6

20.2

21.8

21.0

23.7

25.2

Capex

(4.7)

(3.2)

(5.8)

(5.4)

(4.9)

(4.9)

Acquisitions/disposals

(1.6)

0.1

0.1

(8.3)

0.0

0.0

Net interest

(0.5)

(0.3)

(0.1)

(0.1)

(0.3)

(0.3)

Equity financing

(0.5)

0.1

(0.2)

0.0

0.0

0.0

Dividends

(9.1)

(10.1)

(11.0)

(12.2)

(13.1)

(13.7)

Other

0.5

0.2

0.1

0.2

0.0

0.0

Net Cash Flow

7.7

7.0

4.9

(4.8)

5.5

6.3

Opening net debt/(cash)

 

 

18.6

10.6

3.5

(1.3)

3.7

(1.8)

FX

0.3

0.1

(0.1)

(0.2)

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.1

0.0

0.0

Closing net debt/(cash)

 

 

10.6

3.5

(1.3)

3.7

(1.8)

(8.1)

Source: XP Power, Edison Investment Research

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United Kingdom

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US

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New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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