Xp Power Share Discussion Threads

[owenski] 23/12/2011 10:12

Wondering whether the outlook will soften here?

[philo124] 13/12/2011 19:34

Yes. pleased with this although i didn't top up.
Some big US company warned on Thailand effect but accept this could be irrevelant.

[cheaky monkey] 13/12/2011 16:02

Some decent momentum building here? IS XPP about to have a nice run again? About time...

[owenski] 06/12/2011 17:00

looks like vidacos trimmed down a tad

[philo124] 06/12/2011 16:17

AQny views on today's RNS?

[cockneyrebel] 01/12/2011 16:14

yep, think I'll wait :-)

chart falling through support here so not a wise time to be long - director buy might be to try and stem the fall rather than his confidence too - not much of a buy compared to his holding.

CR

[owenski] 01/12/2011 15:32

Looks like its still being sold down to me.

[owenski] 01/12/2011 15:30

Why are you going long now CR when the chart's showing otherwise?

[cockneyrebel] 01/12/2011 14:30

yep, but these guys have been pretty good at timing their trades.

Think I'll be long a few before the close.

CR

[owenski] 01/12/2011 12:16

That's not a token purchase either, I notice that he's already good for 11.5%, interesting.

[cockneyrebel] 01/12/2011 12:05

Hmm, I notice a director has bought this am - does he read this thread? :-)

CR

[owenski] 01/12/2011 11:02

I'm waiting for Jan update before I make a decision CR, want to see if anymore 'softening' has been occurring, looks to me like 10 is resistance now and its moving down from that, could go lower. Deffo on my watch list though.

[cockneyrebel] 01/12/2011 10:57

Anyone think these are a buy now?

I'm itching to. With over 50p eps under the belt in H1 and Investec forecasting 113p eps and a 43p divi this year and 128p eps for the year ahead and a 49p divi that would be a fwd PE of 7.

A 5 year record of strong earnings growth good enough to make these a Slater zulu type stock.

With TTG bouncung well recently and VLX looking like it has bottomed then perhaps the sector is back on the up or at least seen the fall done with.

Trading update around Jan 7th I think.

CR

[fardistanthills] 21/11/2011 12:20

Interesting read cm. One thing which has struck me about XPP but which doesn't seem to get much mention in any of the punditry is their low level of sales in Asia, a little less than 10%? Following the move out to Singapore you would have thought this would have increased more than it seems to be doing? Must be a big opportunity? They do give it a bit of a nod in the Annual Report for 2010:

"In the medium term we expect revenues derived from Asia to be an increasing proportion of XP Power's worldwide revenues."

And to be fair in HY1 2011 revenues in Asia were up 111%,

[cheaky monkey] 21/11/2011 10:14

Good article from Interactive Investor

"Essential products and services" is a key stock-picking theme for challenged times. Better still if the company is perceived as cyclical, such that its shares get trounced by wary sentiment while investors fear recession. That way, you have a greater chance of buying at a discount to long-term fair value.

The main dilemma is investment timing: how deep and long this economic downturn may extend.

The FTSE Small Cap shares in XP Power (XPP), a leading provider of critical power control components, are a good example. Their price has nearly halved from a spike near 2,000p last spring, to just under the 1,000p level - pretty much where they started the year. The company has quality revenues despite some aspects of cyclicality, also high margins.

XP Power designs and manufactures power controllers: an essential hardware component in every piece of electrical equipment that converts power from the electricity grid into the right form for the item to function. While recognising XP's prosperity relates to aggregate demand for electrical products, the group's revenues are high quality because the components go into items with an average life cycle of seven years.

Since the components are critical to the items' viability, requiring safety approval, they cannot realistically be replaced once production starts. This is why XP's management refers to an "annuity" aspect of revenues with reasonably predictable growth.

The cyclical sense is because about 45% of sales go into various industrial sectors (which are not immune to recession), 30% to specialist non-consumer electronics and 25% to medical products. The end-markets for these components are mainly North America and Europe, each accounting for about 45% of sales. Questions over the US economy and storm clouds over Europe have coincided with the shares de-rating from July.

In such a context there is likely suspicion among investors over directors' share sales - even though they continue to own 22% of the company - and the 6 October interim management statement which omitted to clarify third-quarter trading (like it did last year).

Last June, five directors sold 1,938,662 shares at £15.25, a small element of which related to options exercising, and they continue to own 4,264,474 shares. Cynics may chuckle at these sales falling into the gamut of "providing liquidity" in a tight market, an apology that tends to be trotted out when directors of small cap companies unload shares. (These were placed with institutions.)

For more on cutting-edge firms in this sector, take a look at our guide to investing in technology.

Edison Investment Research, which is sponsored by XP, published a note on its website estimating third-quarter year-on-year growth of 7% while the IMS spoke only of 20% over nine months - or 24% in constant currency terms - "supported by our solid order book which remains robust, despite some recent customer push outs in North America."

Compare this with the first nine months of 2010 showing 32% revenue growth with 52% growth disclosed for the third quarter. And note the suitably vague caution: "Looking further ahead, the dynamic of low interest rates, which should increase demand for the capital equipment manufactured by our customers, is countered by the increasing negativity of global end-market growth forecasts."

What is interesting to a potential long-term investor is that the market seems to be uneasy about the share sales and relative slippage, hence de-rating XP shares. Yet this is essentially a well-run niche business - the sort of company/share to prioritise watching when sentiment is against it. If you visit the company's website you can see from the August interim results presentation, how a re-positioning and investment for long-term growth have created an "own design, own manufactured" business.

Revenue growth has been supplemented by taking more control of the production chain, which has helped boost the gross margin from 37% five years ago to nearly 50%. In 2006 a manufacturing joint venture began with a Chinese partner which became wholly owned in 2009. Most of the components sold are own brand and the proportion that are designed in house is targeted to improve from 55% to 75%.

Even before this, XP withstood the 2008-09 financial crisis and recession. 2009 revenue slippage was less than 3% to £67.3 million and pre-tax profit rose nearly 9% to £8.7 million. The dividend has also grown as a result of strong cash flow, from 21.0p a share in 2008 to 22.0p in 2009, then a 50% hike to 33.0p for 2010.

This dividend re-rating came after a favourable 2010 trading environment, which helped pre-tax profit more than double to £18.7 million on revenue up 36% to £91.8 million. Diluted earnings per share more than doubled to 83.7p making dividend cover a very comfortable 2.5 times. The prospective yield is possibly over 4% given the 2011 interim dividend jumped again, by 46% to 19.0p.

So there are contrasts in XP's growth story: it has many commendable aspects implying a good long-term investment; then a couple of amber lights by way of the directors' share sales and a softening third quarter. These quite bluff the enthusiasm in the August interims: "multiple new programme wins which are driving growth as market share gains gather pace."

Normalised pre-tax profit jumped 63% to £11.9 million on revenue up 28% to £51.9 million and earnings per share up 70% to 52.9p, but the market clearly now frets this may be a peak growth rate before the eurozone crisis takes its toll.

XP's risk/reward profile should still be resilient at this share price level. 2011 earnings per share ought to be at least 100p and possibly this (or near) level can be sustained even with some revenue slippage in a downturn. The stockmarket appears to be discounting a deep recession, also a thin market in the shares which would make it tricky to sell in size.

Net debt of £19.6 million at end-June compares with £48.5 million net assets with £36.3 million goodwill/intangibles, although that is quite typical of a technology firm. Interest costs are covered nearly 25 times by operating profit. This will help XP weather recession.

The next update will be 9 January as XP goes into its closed period before 2011 prelims. Now the eurozone crisis and the directors' sales have upset sentiment, I would not expect a turnaround before there is more clarity on the numbers' trend - but XP is a quality operation to watch and consider buying into, during the downturn

[taurusthebear] 09/11/2011 11:52

Thin market.

EPS of close to a quid may put this on a desirable PE, but Eurozone worries and unknown effects of the Thai floods (having affected e.g. Toyota and Apple) are two reasons I'm not in a rush to get back in. Call me greedy, but with that risk profile, I'd want a share price under 8 quid.

[tenor] 08/11/2011 15:31

Today XPP has been 1025 to buy, 966 to sell, a spread of nearly 6%. Does anyone know why this is. Most investors just will not hack losing almost 6% plus costs when buying a share.

[valediction] 26/10/2011 21:39

Indeed, wetherfield. Lets hope business is booming.

[fardistanthills] 26/10/2011 21:20

Wetherfield, thanks, reassuring.

[wetherfield] 26/10/2011 10:45

The companies that I work closely with and colleagues within the industry are finding the business booming. Personally, I have had the highest order intake this year, compared with the past! That is why we find it difficult to accept that there is a recession happening. Nearly all goods sold in the electronics sector contain a power supply. XP have always had close relationships with their Clients and with their design centre, they can now offer product specific designs for most Clients. Where as in the past,they had to source power supplies, they now have greater opportunities and can be very competitive on pricing. Therefore increasing their margins. I have to say that at £20 a share it was a bit extreme!

[fardistanthills] 26/10/2011 10:10

Wetherfield - 25 Oct'11 - 21:53 - 1607 of 1608


"Being in the power supply industry for many years ..." I hope you don't mind me asking, but do you have any insights into how industry segment that XPP operate in is developing / currently performing and how XPP's change of strategy is being perceieved - the change to an in-house manufacturer able to form longer term releationships with end users?

Always interesting to have the views of someone with knowledge of this sort.

[stevemarkus] 26/10/2011 09:45

Majority sourced from China and starting in Vietnam, I think, from memory.

Cheers,
Steve.

[wetherfield] 25/10/2011 21:53

Being in the power supply industry for many years, Thailand is not known for sourcing components! I would like to think that XP are sourcing their components from China where their production facility is currently operating from. Hence the high margins.

[philo124] 25/10/2011 17:37

Fair point, but management will manage accordingly- that's what they are paid to do.