XP Power

A growth surge is underway at XP Power, the designer and maker of essential power controllers that convert electricity grid power into the perfect form for electrical equipment to function.

Interim figures to June from Singapore-headquartered XP were sparkling, with pre-tax profits near-doubled to £7.3m on turnover increased 23% to a record £40.7m, on a combination of economic upturn and market share gains. Net debt was pared further still, from £25m a year earlier to £19m and from earnings increased 67% to 31.1p, dividends were upped 30% to 13p.

XP, whose customers are a diverse band of blue chip OEMs, achieved record gross margins of 46.7% (2009: 45%), which reflected its recent repositioning from specialist distributor to high-value designer and manufacturer. Significantly, in-house developed, XP brand products expanded to represent 90% (2009: 83%) of the total top line.

Management highlighted a pronounced upswing in the technology sector in North America, with the industrial market performing especially strongly in Europe and technology leading the way in Asian markets. Kick-starting the second half with record orders and enjoying buoyant demand for own manufactured product, XP, whose new Chinese facility is approaching 50% capacity utilisation, also says it is now progressing plans for a factory in lower-cost Vietnam to meet future demand as well as spread geopolitical risks.

Forecast to deliver a profits leap from £8.7m to £13.9m for 2010, producing significant growth in earnings and dividends to 60.5p (2009: 40.8p) and 28p (2009: 22p) respectively, XP Power has never been in better shape.

We consider the shares, recommended by Growth Company Investor at 457p in 2006 and offering a yield approaching 4%, have much further to go and occupy strong buy territory.