XP Power — Strong H222 with good visibility for FY23

XP Power (LSE: XPP)

Last close As at 01/11/2024

GBP12.46

16.00 (1.30%)

Market capitalisation

GBP292m

More on this equity

Research: TMT

XP Power — Strong H222 with good visibility for FY23

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.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

XP Power

Strong H222 with good visibility for FY23

FY22 trading update

Tech hardware and equipment

12 January 2023

Price

2,165p

Market cap

£425m

$1.21/£

Net debt (£m) at end FY22

152

Shares in issue

19.6m

Free float

90%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

7.2

41.5

(56.7)

Rel (local)

3.7

25.6

(56.5)

52-week high/low

5,250p

1,464p

Business description

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

Next events

FY22 results

28 February 2023

Analyst

Katherine Thompson

+44 (0)20 3077 5700

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*
(£m)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

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

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This report has been commissioned by XP Power and prepared and issued by Edison, in consideration of a fee payable by XP Power. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Worldwide Healthcare Trust — Sticking to the successful long-term strategy

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.

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