Electronics engineer XP Power (XPP) saw a demand surge during the final three months of 2020. This means that profit for the year through to 31 December will be ‘ahead of expectations’.
The £1 billion company upgraded its annual profit guidance as revenue jumped 25% in the fourth quarter. This followed particularly strong growth from semiconductor clients while efficiency gains were pushed through at its healthcare arm, lifting margins.
XP Power is a science-based engineer of complex power equipment solutions. Many power systems require custom output voltage combinations, unique control or status signals and specific mechanical packaging for optimal performance and integration.
This is kit designed for when off-the-shelf solutions simply won’t do, such as AC-DC (alternating current - direct current) power supplies, DC-DC converters, high voltage power and radio frequency power capability. Target markets include defence, aerospace, healthcare, rail and a few other custom power niches.
PRE-FLAGGED SEMI’S SURGE
Semiconductors have been particularly strong area of business in recent months, a point Shares made back in August.
‘XP’s semis revenues surged 56% year-on-year in the first half of 2020 and drove order intake in the second half’, said Stifel analyst Luke Holbrook on Tuesday.
‘Importantly for XP, Samsung seems to be ploughing on with its capex plans, aiming to increase its technology and margin gap versus latecomers in the industry.’
Samsung is one of the world’s largest manufacturers of semiconductors, with Holbrook estimating a global market share of circa 35%.
This helped overall revenue for the three months through December to rise from £47.2 million in 2019 to £58.8 million last year. Revenue for the full year ended 16% higher, according to the company.
XP Power said its fourth-quarter dividend was not expected to be less than 34p per share, representing a minimum total dividend of 72p for the year.
Fourth-quarter orders fell 4% to £55.9 million, or by 2% on a constant currency basis.
‘Order intake for the fourth quarter was positive and the group is performing well, despite the challenges created by Covid-19, and we therefore expect further underlying revenue growth in 2021’, XP Power said.
ANALYST UPS 2021 ESTIMATES
The trading update saw Stifel’s analyst recalculate his 2021 forecasts for XP Power. ‘We raise our revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) by 3% for 2021 and increase our target price from £41.40 to £49, valuing XP in line with peers on 16-times EBITDA and price to earnings of 26.’
‘Longer term, the group remains well positioned to continue to deliver growth’, XP Power concluded.
XP Power saw its shares dip around 1.5% from all-time highs to £50.20, perhaps an unsurprising pause given the stock’s recent rally. The stock has surged nearly 20% since the days before Christmas.
