XP Power

Electronic power conversion specialist XP Power says current forecasts for 2010 are ‘very achievable’ following plentiful new business wins over recent months.  

Chief executive Duncan Penny says the technology markets that the company sells into ‘came back in the second half, and the strong finish to the year has continued into 2010’. Results for calendar 2009 revealed profits before tax and exceptionals up 9% to £8.7m, on broadly flat revenues of £67.3m.

Group profit margins have been steadily rising as XP increases the proportion of products based on its own intellectual property (IP) into the sales mix, up from 78% to 83% of the total last year and lifting margins from 44.2% to 45%. The commissioning of a new factory in China dragged the figure down 0.7% last year, but Penny thinks ‘in 2010 it should be slightly accretive to margin’ and is targeting 50% margins in the medium term.

The new factory, three times bigger than its predecessor, ‘removes a big barrier’, adds Penny, ‘as we were too small in manufacturing capacity for some customers’. Although two ‘big’ new customers have been won off the back of this expansion, he clarifies that ‘most growth should come from existing customers’.

While part of XP’s recovery is attributable to customers re-stocking, having previously allowed inventories to run down, the outlook is encouraging with its end markets stabilising and new business flooding in. Confident XP has guided the forecasts of City analysts higher, such that house broker Investec now predicts pre-tax profits of £9.9m and EPS of 44.8p for the current year, with Penny adding ‘I feel there is good room for us to upgrade’.

The shares, backed here last year at 207p, retain plenty of upside potential. Add.