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XP Power pulls divi, sees strong healthcare orders

By Frank Prenesti

Date: Friday 03 Apr 2020

(Sharecast News) - Power controller maker XP Power pulled its final dividend and cautioned for the full year despite "exceptional" order strength in its healthcare unit due to the coronavirus.
First quarter orders were up 34% to ?73.1m year on year and revenue 5% to ?49m, the company said on Friday. Axing the dividend would save ?6.9m, it added.

The book to bill ratio, which tracks the relationship between orders received and completed sales, and indicates future revenue growth, was 1.49 for the first quarter against 1.16 times last year driven by the demand from healthcare customers.

XP Power said order intake to date remained robust and the group had a substantial backlog to fulfil, with shipments weighted towards the second half. Manufacturing volumes in China had recovered strongly from lows seen in February as employees returned to work, with capacity expected to return to normal levels during the second quarter.

"Our factories in Vietnam have continued to manufacture as normal with minimal impact from Covid-19. To date, component supply has been resilient, but we are monitoring supply chains closely."

"Revenue growth has been encouraging, despite the extended shutdown of our manufacturing facility in China and the associated supply chain challenges we have experienced."

"While we remain encouraged by the strength of our order book, the extent of disruption to the global economy from the impact of Covid-19 is currently impossible to predict, introducing a significant element of uncertainty into the outlook for 2020 as a whole."

Investment research firm Edison said the order intake was higher than expected, but it was still unclear how much was incremental new business or demand being pulled in from from the second half of the fiscal year.

"In addition, weaker sterling versus the dollar could provide upside to our revenue forecasts. We make no change to our revenue forecasts, as although the Q1 order intake would indicate a revenue upgrade, there is too much uncertainty over demand for the rest of 2020 as well as the potential for Covid-19 restrictions to hamper XP's ability to deliver product," Edison said.

"We factor in higher costs in FY20 to deal with disruptions in the supply chain and cut Q419 and Q120 dividends to zero."

It added that since reporting full year results in early March shares in the company had fallen 23% on fears of further COVID-19 disruption.

"On a P/E basis, XP continues to trade at a material discount to global power converter companies and a smaller discount to UK electronics companies, despite generating earnings before interest and tax margins at the top end of the peer group," the research house said.

"Until there is more clarity on the longer-term global economic implications of Covid-19, we would expect the shares to tread water. However, we highlight XP's strong backlog and access to funding, which should support it during this period."

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