Hot on the heels of its recent US acquisition, XP Power’s trading update confirms that strong trading continued into Q3. Q3 revenues were 35% higher than a year ago, with nine-month revenues up 34% y-o-y and 21% in constant currency. We revise up our revenue forecasts to reflect much stronger than expected trading in Q3, which results in normalised EPS upgrades of 5.7% in FY17e and 7.1% in FY18e.
XP generated revenues of £43.7m in Q317, +35% y-o-y and +8% q-o-q, and ahead of our £37.4m forecast. For the nine months to 30 September, revenues grew 34% (21% in constant currency). Q3 order intake also remained strong at £44.1m, +26% y-o-y and -5% q-o-q, to result in a book-to-bill of 1.01x for Q3. For the nine months, orders grew 44% y-o-y (+30% in constant currency). The company saw particularly strong demand in North America, from semiconductor equipment manufacturers enjoying this year’s upturn in chip demand and healthcare companies placing orders for new programmes.
After paying $23m/£17m for Comdel at the end of the quarter, the company ended Q317 with a net debt position of £10.8m (vs net cash of £8.0m at the end of H117). The company announced an 18p dividend for Q3 (1p ahead of our forecast) to be paid on 11 January to shareholders as at 15 December. Management anticipates that FY17 results will be ahead of expectations outlined at H117 results. We have revised our forecasts to reflect the stronger than expected revenues and bookings in Q317. We raise our revenue forecasts by 4.7% in FY17 (28.5% growth y-o-y) and 5.3% in FY18 (7.4% growth). This results in an increase in our normalised EPS forecasts of 5.7% for FY17 and 7.1% for FY18.
The stock is up 62% year to date and 17% in the last three months, reflecting multiple earnings upgrades over the course of the year. On our revised forecasts, XP is trading on 19.4x FY18e EPS. This is in line with its UK electronics peer group and at a small premium versus international power supply peers. Cross-selling and a reduction in manufacturing costs for Comdel have the potential to provide upside to our forecasts.