Xaar Spotlight: In the thick of it – addressing market needs
The turnaround of Xaar in recent years has been driven by effective and clear management action. The business has been stabilised and realigned with its markets, new products released, and small but strategic acquisitions made. In amongst all this, it is easy to overlook the underlying technology, particularly how it compares with the competition and the opportunities that lie ahead. With the business on the front foot again, we highlight how the structure and design of Xaar’s printheads provide competitive advantages in overcoming the key challenges faced in several of the areas that make up the company’s $1bn addressable market opportunity.
24 Jan 23
Xaar: Strong FY22 but China and costs impact FY23
Xaar’s update for the year ended 31 December 2022, issued today, states that revenue is expected to be c.£74m and adjusted PBT ‘on track’. This revenue figure is slightly ahead of our estimate but more importantly 24% ahead of the prior year, with much of this growth having been organic. We adjust our expectations for FY23 to reflect an element of ongoing caution on China, as well as cost increases across the business. However, with its aqueous printhead, Aquinox, successfully launched and the factory reorganisation expected to be complete by March, Xaar remains on the front foot from strategic, operational and financial perspectives. Nothing has fundamentally changed within the business – our new outlook for FY23 is more prudent, but hopefully allows for strong growth in FY24 estimates, which we expect to introduce with results in March.
12 Jan 23
Xaar : Managing the disorderly China re-opening
2022 revenues are now expected to be marginally ahead of our expectations, equivalent to year-on-year growth of 24% driven by a combination of organic growth of 9% and acquisitions. While this has reduced the growth required to meet 2023 revenue expectations from 7% to 5%, it is too early to contemplate any change to our revenue estimates. China may have reversed its Zero-Covid policy, but any hopes of full and orderly reopening have been quickly diminished by rising Covid cases. Indeed, Xaar anticipated this and maintained higher levels of investment in inventory during H2/22 thanks to a strong balance sheet. However, it’s prudent to assume that the loss of short-term momentum will reduce recovery of cost inflation, so we have cut our PBT forecasts for 2023-24 by c£2m. This reduces our DCF-derived TP by 12% to 251p. However, we maintain our BUY recommendation given the long-term drivers.
12 Jan 23
Xaar: Aquinox – a turning point in inkjet technology
Xaar announced on Wednesday the release of its Aquinox printhead for use with water-based inks. This is a major step forward for Xaar and for aqueous inkjet printing. Aquinox is the latest printhead to work on Xaar’s ImagineX platform and helps open up new markets, most notable packaging and textiles. It also enables Xaar to take advantage of increasing demands in other markets, notably ceramics.
18 Nov 22
Xaar: Strong results; stronger underlying progress
The interim results for the six months ended 30 June 2022, released today, provide further evidence that Xaar is back on a growth path. H1 22 revenue was up 39% on H1 21 and 11% on H2 21. Organic growth was a very impressive 14% H1 on H1. These figures actually mask even stronger underlying progress, as the Printhead business was significantly constrained by the continued Covid-19 lockdown restrictions in China. Xaar is on track to launch its new aqueous printhead product in Q4 2022. The recent FFEI and Megnajet acquisitions are performing well, and all business units delivered positive adjusted EBITDA in the period.
20 Sep 22
Xaar : Undemanding full year expectations
This morning’s interim results confirm the upward shift in momentum, with the income statement registering YoY revenue growth of 39% (14% on an organic basis) and an underlying profit before tax for the second successive half-year period. More important, the outlook of being “on track to deliver a full year profit for 2022 in line with market expectations” looks comfortably within grasp as it entails a flat H/H revenue growth and break-even at the PBT level in H2/22. If we were tempted to raise our 2022 forecasts, we were promptly reminded that no company is totally immune from the multiplicative effects of a broad-based recession, exacerbated by the continued uncertainty over China’s strict COVID policies. However, as management has given itself every chance of sustaining the momentum by utilising its strong balance sheet to invest in its capabilities and supply chains, we see no reason not to maintain our BUY recommendation and an unchanged TP of 285p.
20 Sep 22
Xaar: Firmly back on the growth trajectory
Xaar’s H1 trading update for 6M ended 30th June 2022, issued yesterday, confirms that the group is trading well, with increased revenues, improving margins, costs under control and new products launching to schedule. Xaar is clearly back onto a robust growth trajectory. We are maintaining our forecasts and look forward to the interims in September as an opportunity find out more about how the momentum is building.
15 Jul 22
Xaar : What use is a strong balance sheet if it is never utilised?
This morning’s trading update for the first half of the year further crystallises our view that Xaar has shifted to a higher gear. H1/22 revenue is expected to have increased by 41% YoY, or 14% on an organic basis. With most of the West in recession and the uncertainty over China’s strict COVID policies, we are minded to keep our full year revenue growth forecast of 24% unchanged, although some readers may conclude this is excessively cautious as it implies a flat H2 over H1. Indeed, management has given itself every chance of maintaining the momentum by investing around £11m in capacity, supply chain resilience and vertically integrated capability during H1/22. What use is a strong balance sheet if it’s not being utilised to differentiate in a generally tough economic environment?
14 Jul 22
Xaar: Roadmap to significant profit growth
With a clear roadmap of new digital inkjet products and an ambitious management team focused on gaining (or retaining) significant market shares across the segments that make up its $1bn addressable market, Xaar is positioned to grow strongly. Management has already demonstrated its abilities in turning the business around, and we believe it is far from clear that the share price fully reflects the opportunities ahead.
22 Jun 22
Xaar : Moving up a gear
We are upgrading our revenue forecasts for 2022-23 by 10-14%, representing a CAGR of 15% over the 2021-23 period. This reflects strong momentum in the Printhead business as well as a strong rebound in the Product Print Systems (EPS) division. More importantly, gross margins are also improving significantly faster than we had expected and the 40% medium-term target is now well within grasp by 2024. As we asserted in our January note, Xaar is still in the early stages of leading the shift to digital industrial printing and investors should continue to expect more positive surprises. Whilst the continuing investment in R&D and marketing has kept our PBT and EPS estimates for 2022-23 largely unchanged, the acceleration in revenues and gross profits has brought forward expected free cashflows in our DCF model, thus raising the TP to 285p (250p). We maintain our BUY recommendation.
29 Mar 22
Xaar : Further vertically integrated
Xaar continues to develop its vertically integrated strategy to provide a onestop-shop solution to help customers accelerate adoption of digital inkjet printing. This morning, it has announced the acquisitions of two businesses that will broaden its capability in industrial ink management and supply systems, and allow it to offer a more integrated inkjet solution. Moreover, at 5.7x pre-tax profit, the multiple paid covers most downside risks but still leaves the balance sheet with sufficient cash to boost the growth strategy. While these transactions are earnings enhancing, and reflected in our revised forecasts, we have kept our TP of 250p unchanged as we remain cognisant of continuing disruption to trading from COVID in China and also recent geopolitical tensions. We maintain our BUY recommendation.
03 Mar 22
Xaar : SPrinting to profitability
We are not surprised to learn this morning that H2/21 revenues were 11% ahead of expectations or that turning a profit in H2/21 was a year ahead of target. Nor are we bowled over by net cash at end-2021, at £25.2m, being £9m ahead of our expectation. The foundations for today’s positive announcements were laid in early 2020 when the current management team came together and recognised the potential to rebuild and transform Xaar. Investors should be prepared for more “beats” as Xaar is still in the early stages of leading the shift to digital industrial printing, as described in our note last week. However, we are cognisant that COVID is still disrupting activity, particularly in China, and hence we are leaving our P&L forecasts for 2022-23 unchanged. The higher-than-expected net cash, however, increases our DCF-derived TP to 250p (231p).
13 Jan 22
Xaar : SPrinting to digital
If any company can bring down the economic barriers and accelerate the shift to digital industrial printing, then surely Xaar is a leading candidate. A vertically integrated strategy allows unmatched printhead innovations to broaden the use of challenging inks in key verticals but also leverage a much wider customer base looking to develop bespoke solutions in half the normal development times. The cumulative benefit of the growing installed base will only feed through to our estimates from FY24 but with digital accounting for just 3% of the total printing market there are no immediate barriers to how large the addressable market could become. The recent slump in the share price offers a great buying opportunity.
05 Jan 22
Xaar : Proposed sale of Xaar 3D removes a key balance sheet risk
Xaar has accomplished a key plank of its strategy by conditionally agreeing terms to speed up the sale of its 55% interest in Xaar 3D to Stratasys, its minority partner. With significantly greater strategic and financial commitment to Additive Manufacturing, Stratasys is best placed to develop Xaar 3D, leaving Xaar to focus on developing its core competences in digital inkjet printing while retaining the option of sharing in Xaar 3D’s success and supplying printheads. In addition to the initial consideration of US$12.83m (£9.2m), expected to be paid in a month, the revised agreement also includes earn-out payments totalling US$4.63m and an improvement in initial earn-out and royalty rate terms. While there is no change to our forecasts and DCF-derived TP of 231p, today’s news removes the risk of further cash demands from Xaar 3D on Xaar’s balance sheet. We retain our BUY recommendation.
06 Oct 21
Xaar : Growth plans on target despite supply chain challenges
A strong balance sheet has ensured that there is no slowing in the pace of the transformation despite the challenges posed by supply chain issues, including COVID-related factory closures and shortages of semiconductors. Management has been able to focus on securing supply of components to eliminate any interruption to the supply of printheads in 2022 while at the same time increasing R&D and capex spend. Given the short-term uncertainties, there is no change to our forecasts and DCF-derived TP of 231p. However, the continuing growth in customer base and new products implies significant upside risk, hence we retain our BUY recommendation.
14 Sep 21
Xaar : Expect stronger gross margin recovery
H1/21 revenue growth of 11% and 8% compared with H1/20 and H2/20, respectively, represents the first tangible evidence that the transformation plan instigated by the current management is bearing fruit. Indeed, for a company that was alienating customers and losing revenues until 2019 this is a rapid turnaround and has vindicated management’s faith in Xaar’s distinctive capabilities in bulk printhead technology which were hitherto unexploited. We now believe that gross margins will rise more quickly in the FY21-23E period, thus providing greater visibility on free cashflow. Therefore, we revert to a DCF valuation, which at a terminal growth rate of 3% and a WACC of 8% generates a TP of 231p as opposed to 176p based on a sum-of-the-parts model previously. We maintain our BUY recommendation.
22 Jul 21
Xaar has issued an update highlighting that trading for the six months to 30 June has been in line with the Board’s expectations and that good progress is being made in implementing the new strategy. H1 revenue is noted to be £23.7m, a 7% decline relative to H1 FY2019, but sequentially in line with H2 FY2019. In the Printhead business, sales are no longer being made through distributors and OEM customers are now re-engaging with the group. New product development in printheads remains key to reversing market share losses over the last few years. Product Print Systems is marginally ahead in revenue terms in the first half, which is below plan, and Xaar 3D is noted as making good progress in testing despite lockdown restrictions. The balance sheet is strong with cash and cash equivalents of £23.9m. Financial guidance remains withdrawn, given the shorter term uncertainties, with the Board focused on a return to profitability in FY2022. The shares trade at c.0.6-0.7x EV/sales, excluding cash ring fenced in Xaar 3D of $7.25m at 19 November 2019 and the potential payment of $33m should Stratasys exercise its call option over the 55% of Xaar 3D that it currently doesn’t own.
16 Jul 20
Final results, guidance withdrawn
FY2019 was a very tough year for the Group, characterised by the decision to cease investment in its Thin Film technology and issues affecting the performance of the core Printhead business. The adjusted loss before tax was £69.8m and included a loss of £9.8m (FY2018 - £4.5m profit) in respect of continuing operations. Period end net cash was £25.3m and this provides the new management team with the resources to implement their strategy and to withstand the uncertain impacts of COVID-19 that are behind today’s expected withdrawal of financial guidance. Whilst management reiterates that the Group has yet to see a significant impact on demand, the statement highlights that the situation continues to evolve rapidly, resulting in actions being taken to preserve cash and to maintain liquidity, including also the use of Government support measures as appropriate. The new strategy looks to address key deficiencies in the previous business model and management believes this sets the right course for an eventual return to profitability and growth in the medium term.
23 Apr 20
Interim results, Board changes and Succession
The Group has announced interim results, which include the impact of the decision to cease its Thin Film operations, and also extensive Board changes. In view of the Stratasys transaction we remain restricted and can therefore provide factual comment only. Interim results show an IFRS loss before tax of £52.3m and an adjusted loss before tax of £15.0m. A separate announcement covers management succession that will see the Chairman, SID, CEO and CFO leave the Group.
26 Sep 19
Proposed increase of investment by Stratasys in Xaar 3D
Ahead of its interim results next week Xaar has announced a significant strategic development for Xaar 3D Limited, its 3D Printer business. Xaar has entered into an agreement with Stratasys that, if approved by shareholders, will see Xaar’s holding in Xaar 3D reduce from 85% to 55% and the issue of a call option that would on exercise see Stratasys own 100% of Xaar 3D. The statement comments that ‘[the group] is pleased that this transaction will create good value for Xaar shareholders and [that it] unlocks the ability for more significant value in due course.’ The proposed transaction and proposed further investment is a Class 1 transaction and also a related party transaction that is subject to shareholder approval which is expected before the end of the year.
12 Sep 19
Trading update, strategic review and delayed interims
Xaar has issued a trading statement together with an update on its strategic review of its Thin Film business and notification that it is to delay the interim results to 26th September (from 10th September). Whilst the statement confirms that first half revenue was £22.5m, trading for the remainder of the year is now expected to be weaker than previously anticipated. Second half revenues are now expected to be similar to the first half. The interims are being delayed to allow time to provide a more meaningful update on a strategic solution to the Thin Film business.
03 Sep 19
In-line trading update
Xaar has issued its scheduled trading update for H1 FY2019E that confirms trading is in-line with management expectations. The statement highlights underlying revenue progression of c.8%, excluding the impact of one-time royalties in H1 FY2018 and a £4m revenue reversal in H1 that is expected to be recovered in H2 FY2019E. There are many moving parts, which additionally include the potential impact from the Thin Film strategic review and the next phase in Xaar’s 3D Printing partnership with Stratasys, and we intend to take a more detailed look at our estimates in the light of the interim results that are due on 10th September 2019.
08 Jul 19
A tough year, but grounds for optimism
2018 was a difficult year for Xaar. Revenues from ceramics fell more sharply than the group had expected, while growth in sales of its new Thin Film products was delayed. Management reduced costs, while continuing to drive strategic progress, diversify the business and explore printhead partnering options to share costs/help maximise opportunities. However this was overshadowed by downgrades to profit expectations through the year, and ultimately a move into loss. Given this backdrop, the difficulty for investors is gaining confidence that performance has now troughed and that Xaar’s efforts to build new revenue streams is beginning to pay off. The group has not yet provided proof of its recovery, but we note that ceramics revenues increased in H2 18, while Thin Film and 3D Printing have been validated by external customers and partners. It is difficult to value the company at this stage, but based on our near term forecasts and before any new partnership agreement, we suggest 135p per share.
03 Apr 19
Underlying trading in line with December update, before c.£7m increase in provisions
Xaar has provided an update for 2018, confirming underlying trading and year end net cash in line with its previous announcement from December. It has also highlighted a probable increase in provisions of c.£7m on the basis of prudency, subject to final audit. This is for inventory and debtors, driven by the previously reported slow ramp up of new product volumes in China, primarily its 1201 Thin Film printhead, due to integration issues. The increase in working capital is expected to reverse, but over a longer period than normal. Management expects to take this provision above the line as it relates to sales of continuing products, increasing the reported loss before tax for the year. We have not published updated numbers post the December warning, but noted at the time that this could result in an underlying loss before tax for 2018 of c.£4-5m vs our previous £2m estimate shown below. Post provision, we would expect loss before tax to be closer to £11-12m for the year. The integration issues are now reported to have been resolved with sales volumes expected to increase in 2019. We will review our forecasts following the prelims on 21st March, when management is also expected to give an update on options to reduce costs in its printhead business through more extensive partnering.
11 Mar 19
Trading below expectations
Xaar has given an update on trading, which has missed management’s expectations for the final months of 2018. This has been driven primarily by continued declines in sales into its legacy ceramics end market, but also slower than expected adoption of the 1201 printhead. Revenues for 2018 are now expected to be c.£64m, c.£1.5m below our £65.5m forecast, however gross margin has also been impacted by a negative mix effect. We have not yet updated our forecasts, which we place under review, but would anticipate a profit shortfall of c.£2-3m. This could result in a loss before tax of c.£4-5m for 2018, vs our current estimate of a loss before tax of £2.0m. It is disappointing to need to trim our near term forecasts again, particularly given the good progress over recent months regarding longer term revenue streams. This includes securing three new OEM partners (Windmöller & Hölscher, Neos, KELENN Technology) which have adopted Xaar’s 5601 next generation Thin Film printhead for applications in new end markets, with commercial revenues potentially beginning in 2020. Management remains focused on more extensive partnering for its printhead business unit, while also addressing the cost base, and expects to provide an update at the prelims on 21st March.
28 Dec 18
Disappointing results; positive strategic progress
Xaar updated the market last week that trading has been below expectations since the end of June. This has been driven by slower than anticipated adoption of the wellreceived new 1201 printhead and a continued aggressive decline in revenues from Xaar’s legacy ceramic tile printing market. The H1 18 results saw a fall in adjusted operating profit from £7.8m to £3.1m, a reduction in net cash to £36.8m and a rebasing of the dividend to 1.0p. We have cut our estimates to reflect the current difficult trading environment, and now forecast adjusted operating losses for FY18 and FY19. However we would expect these forecasts to increase once the strategic review of the Printhead business is completed, whether due to partnering or to further cost reductions. The results are disappointing, but strategic progress to drive future growth has been encouraging. This includes the new partnership with Stratasys for 3D printing and the announcement by OEM, Windmöller & Hölscher, that it will use Xaar’s new 5601 printhead for the flexible packaging market.
05 Sep 18
Small Cap Breakfast
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XAR ITX TCM KRM GYG ABC SMV WPHO HDD AFGYF
12 Jul 18
Ceramics below expectations; cost reduction plan
Xaar has given an update on trading during H1 18. While the group continues to make progress in its new products and markets, the decline in sales from its legacy ceramic tile printing market has been sharper than anticipated. Management has lowered its expectations for sales to this market and initiated a corresponding cost reduction programme to align capacity with demand. The group aims to make savings of c.£2m in H2 18 such that FY18 adjusted PBT remains in line with market expectations, although with a more pronounced H2 weighting. We have downgraded our top of the range FY18 adjusted PBT forecast to this level, which represents a 16% reduction, followed by cuts of 12% for FY19 and 7% for FY20. This downgrade is disappointing, but is driven by the legacy business only. We expect continued strong growth from non-ceramics sales (82% of forecast product sales in FY18, vs. c.33% in FY15) and a return to profit growth for the group in 2019
27 Jun 18
2017 results in line, transformation continues
Xaar’s reported numbers for 2017 were ahead of our forecasts, reflecting £10m of upfront license revenue from the agreement signed with Seiko in December 2017. Excluding this, underlying sales, profits and net cash were in line with our estimates. The group continues to show good growth in its new products and markets (sales up 23%), while sales from its legacy ceramic tile printing market continue to decline (down 20%). The transformation of the group to a more broadly based and customer focused business has been challenging, with underlying progress also obscured by lumpy high margin licence fees. However this progress will become clearer as ceramics become less significant (26% of our forecast product sales in 2018) and the final Seiko royalty revenues are received (also 2018). We expect Xaar to return to profit growth in 2019 and for this to be reflected in the share price.
21 Mar 18
N+1 Singer - Xaar - Update on licence agreement with Seiko
Xaar has reached an agreement to receive an upfront payment instead of future royalties from one of its licensees. Xaar will receive a total payment from Seiko of ¥2.98bn/c.£20m, paid in two tranches. These will both be paid by the end of H1 18, although exact payment dates have yet to be confirmed. We view this upfront payment as a better outcome for Xaar than the royalty stream, which we have always forecast to decline towards zero by the early 2020s (N+1Se £5m in 2018, £4m in 2019). We have not yet amended our forecasts, pending clarity over timing of payments. However clearly we would anticipate an increase in net cash by 2018 and an associated reduction in underlying sales and profits, as the future royalty stream will represent only one remaining licensee (Toshiba TEC).
14 Dec 17
N+1 Singer - 3D Printing and Advanced Manufacturing - Exciting prospects for growth
At our 3D Printing and Advanced Manufacturing lunch on Monday three companies updated us on the developments and significant opportunities for their business in this exciting new area. We were pleased to welcome speakers from Xaar, Victrex and unlisted group Metalysis. Each company gave a 15-20 minute overview of their existing activities in 3D printing and how they are continuing to develop their offer to capitalise on the strong growth and value creation opportunities ahead. Brief summaries are listed below, with more details inside, along with the slides presented by each company. All three of the groups have strong prospects and we are happy to arrange further contact.
Xaar plc Victrex plc
13 Dec 17
N+1 Singer - Morning Song 13-12-2017
Curtis Banks Group (CBP LN) Upside from strategic initiatives not yet recognised | ECO Animal Health Group (EAH LN) Marketing authorisation for Aivlosin® in Canada | IDOX (IDOX LN) Year end update and Board change | Microsaic Systems (MSYS LN) New phase of research agreement with global partner in biopharma | Safestyle UK (SFE LN) Tougher trading & further margin pressure drives another 10% d/grade | Zotefoams (ZTF LN) Strategic partnership with Nike
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13 Dec 17
Panmure Morning Note 20-11-2017
The company has today warned that revenue in the second half of the year will be broadly in line with the first half. The shortfall against previous expectations of growth results largely from fewer than planned new printer installs of Xaar's 2001 Printhead, and slower than anticipated ramp up of the Xaar 1201 Printhead due to supply constraints. We are placing the stock under review as we assess our forecasts and recommendation.
20 Nov 17
Xaar has evolved from a one-hit wonder in 2013 to a company capable of consistently employing capital at double-digit growth and generating progressively higher returns on capital employed. The digital revolution is still at an early stage accounting for just 3% of total print and printed packaging market. As the largest independent printhead supplier, Xaar continues to lead the major disruptors in piezoelectric drop-on-demand printing. Specifically higher productivity in ceramics and 3D printing, longer life in printed electronics, environmentally friendly water-based jetting and flexibility in direct-to-shape. Based on capital employed of £278m in 2018 and pre-tax cash ROCE of 14%, we forecast a 12-month target market cap of £435m, equivalent to 556p per share. BUY.
29 Sep 17
N+1 Singer - Xaar - H1 17 trading in line; further agreement with Xerox
Xaar’s H1 update has confirmed trading in line with expectations. Management anticipates flat revenues of c.£44m for H1 17 and has reiterated its previous guidance of a higher than normal H2 weighting for the year, as sales grow from newly launched print heads such as the 1003 and 1201. The group has also announced a Joint Development Agreement with Xerox, building on the Partnership Agreement signed in January. This commits the two groups to jointly funding and developing the next generation technology platform for industrial bulk piezo print heads (ie the successor to Xaar’s P3), leveraging their combined IP and resources to deliver products more effectively. We do not anticipate changing our forecasts at this stage, as Xaar intends to reinvest R&D savings from this shared development into sales & marketing to drive its strategic development.
12 Jul 17
N+1 Singer - Xaar - Share price weakness at odds with strong prospects
Xaar’s share price has fallen by 37% since mid September. This appears to reflect concerns about forecasts given a softer backdrop in China, its largest geographic end market for its largest application, ceramic tile printing. On our forecasts, the group is now trading on a c.35% discount to the sector EV/EBITDA multiple for 2017, which is at odds with its strong growth prospects. Prelims scheduled for 22nd March will provide a welcome update on progress. However in the meantime it should be noted that (1) 2016 earnings have already been confirmed; (2) trading is typically quiet in Q1 due to Chinese New Year and, while demand from ceramics should be clearer by the prelims, growth drivers are broadening out for the group due to its revised strategy; (3) targeted sales of £220m by 2020 imply very strong growth as the strategy is delivered, growth which is not reflected in N+1S or consensus forecasts and which suggests potential for material upgrades; (4) the strategy should also bring much greater earnings resilience; and (5) the balance sheet remains extremely robust, with a strong year end net cash position.
09 Mar 17
N+1 Singer - Xaar - 2016 EPS guidance reiterated; different revenue mix
Xaar’s year end trading update has confirmed earnings in line with expectations, but from a different revenue mix than we had anticipated. Sales into the ceramic tile printing market are lower than our forecasts, reflecting slower than expected redesign and roll-out of customer printers using the new 2001 and 2001+ print heads, along with continued competitive pressures. However sales are above expectations into all sectors of the packaging and product printing market, as are licensing revenues. Meanwhile initial demand is high for the newly launched Thin Film/P4 print heads, which are expected to provide significant revenues in 2017, ahead of our estimates. We have made no changes to our forecasts at this stage, but expect to adjust our segmental mix and review assumptions post the prelims on 22nd March 2017.
15 Dec 16
N+1 Singer - Xaar - H1 trading in line with expectations
Xaar has confirmed H1 16 trading in line with expectations, with sales of c.£44m. This is in line with the run-rate achieved in H2 15, adjusted for normal seasonality. We have made no changes to our forecasts, which already assume 2016 underlying sales at this run-rate, plus an initial contribution from Engineered Printing Solutions which was acquired on 1st July. The balance sheet remains strong, with net cash of c.£69m at the period end. The group’s strategy remains on track, with first commercial sales from Thin Film anticipated at the end of 2016.
13 Jul 16
Launch of Thin Film/P4 and strategic partnership
Xaar has made two material announcements as part of its appearance at the main printing equipment exhibition, drupa, providing further confirmation of its strategic progress. The first is the launch of its Thin Film/P4 family of print heads, on time and on budget after multiple years of development and investment. This platform offers substantial improvements over the existing technology and is expected to open up new markets and underpin future growth. The second is a strategic partnership with Ricoh, extending Xaar’s product offering through collaborative development at modest cost. We have made no changes to our forecasts at this stage, which put the group on a 2016 EV/EBITDA multiple of 10.3x, c.15% below Electronics and Electrical Equipment peers and the wider capital goods sector.
02 Jun 16
2016 upgrade; 2017 downgrade on R&D treatment
Xaar reported adjusted 2015 PBT 9% ahead of our expectations driven by an increase in gross margin. We have increased our forecasts for adjusted PBT and EPS by 6% for 2016 reflecting this improved profitability. For 2017 we have made the same underlying increase, however our forecast shows a material downgrade as we have also assumed that the first Thin Film/P4 products are successfully launched, capitalisation of R&D ceases as this programme reaches fruition, and that the group begins to amortise the product development on its Balance Sheet. This represents a £10.5m P&L swing which has reduced our adjusted 2017 PBT and EPS forecasts by half, although our FCF per share forecasts are largely unchanged. The group made significant progress in 2015 to stabilise sales to its primary market and to develop the business and its products to open up new markets, with a strong pipeline of launches for 2016 and beyond. Management confidence in the growth opportunities ahead is evidenced by its new target of £220m revenues by 2020, which could suggest adjusted EPS of c.49p in that year based on a historic operating margin of c.20%. This would give a c.15% CAGR, ahead of anticipated sector growth rates.
16 Mar 16
2015 profitability ahead of expectations
Xaar’s year end update confirmed sales in the middle of its £92-95m guidance, as sales growth to packaging markets offset the anticipated softening in demand from ceramic tile printing in China. However profitability was higher than expected due to improved plant efficiency in both Sweden and Huntingdon. We have increased our adjusted PBT forecast for 2015 by 10%, but left subsequent years unchanged reflecting the still uncertain backdrop in China and potential for margin reversal in the Swedish facility as it approaches closure. Net cash increased to c.£70m (c.91p per share), a little ahead of our expectations. The prelims are scheduled for 16th March.
13 Jan 16
Appointment of Director of 3D Printing
Xaar has announced the appointment of Professor Neil Hopkinson to a new role as Director of 3D Printing. The Professor is an industry heavy hitter, the original inventor of high speed sintering (HSS) with extensive experience of additive manufacturing. His role at Xaar will be to continue development of this technology, which uses Xaar print heads, and help accelerate its adoption for volume manufacturing. This will build on his work for the UK Government funded Factum Project, with university and industry partners (Unilever, BAE Systems and Cobham Technical Services). This is an exciting but still immature area of manufacturing, and we would expect a positive response to Xaar’s new appointment.
06 Jan 16
Xaar has announced two changes to the Board. Chris Morgan will join as a Non-Executive Director in January, bringing extensive international and management experience from 25 years at technology group, HP Inc, with direct experience in Xaar’s markets. The group has also announced the resignation of Chief Customer Officer, Richard Barham, whose role will not be replaced with another Board appointment.
11 Dec 15
Q3 update; guidance reiterated
Xaar’s Q3 update reiterated existing guidance, reflecting H2 sales to date broadly in line with H1. Sales to the ceramic tile printing market have been stable but seen some softening in China in October; packaging sales continue to grow (including direct-to- shape); and graphic arts sales have declined slightly less than expected. We have not changed our 2015 forecasts, which assume sales at the bottom of the £92-95m guidance given lack of visibility regarding Chinese demand. For 2016 we have trimmed sales to ceramics but assumed opex is reduced accordingly, hence profit forecasts are unchanged. Medium term growth prospects are supported by new product launches and development of the next generation Thin Film technology, which remains on track. Net cash has increased to c.£67m.
04 Nov 15
Turned the corner
Xaar reported a YoY decline for H1 15, but a HoH improvement as sales stabilised and profitability increased. Packaging offers the best potential for near term growth, while development of its next generation Thin Film technology remains on track and should open up new markets and applications longer term. We have increased our 2015 PBT forecast by 4% and note the c.10% EV/EBITDA discount to sector multiples.
27 Aug 15
Reassuring H1 trading update; sales stabilised
Xaar has given a reassuring H1 2015 trading update. Sales to the ceramic tile printing market stabilised in H1, following the decline in demand in the latter half of 2014, and sales to other end markets performed in line with expectations. While visibility remains limited, performance YTD has led to an increase in full year guidance from c.£90m to c.£92-95m of sales. The group has also reported a net cash balance which is stronger than we had expected at £58.6m, reflecting a reduction in stock and phasing of capex. We have increased our 2015 sales forecast to reflect the updated guidance, driving a 5% upgrade to adjusted operating profit and PBT, and increased our forecast for year end net cash from £50.0m to £60.3m. We have not changed our 2016 sales and profit forecasts at this stage. Development of new applications, such as direct-to-shape, and the next generation Thin Film/P4 platform remains on track.
08 Jul 15