With the acquisition of Glassman High Voltage, XP continues in its quest to expand its product portfolio to include high-voltage and high-power products. The acquisition should help XP to further penetrate key accounts, as well as adding new customers. XP is paying £31.8m in cash, funded by extending the company’s credit facility, and expects the deal to be earnings enhancing in FY18. We increase our FY18 and FY19 normalised EPS forecasts by 3.6% and 6.1% respectively. We forecast a net debt/EBITDA ratio of 0.8x at end FY18, well below the company’s 2.0x ceiling.
XP Power has agreed to acquire Glassman High Voltage, a US-based designer and manufacturer of high-voltage, high-power conversion products. This extends XP’s product portfolio to include products that supply both high-power and high-voltage, complementing EMCO’s high-voltage, low-power products and Comdel’s RF power products. With limited sales capability of its own, Glassman products will be marketed by XP’s salesforce. While Glassman has some customers in common with XP, there is no overlap in terms of products sold to those customers, and it brings several new customers to the group.
Glassman generated revenues of $17.3m and PBT of $2.9m in 2017 (16% margin). We have factored in pro-rated revenues at a growth rate of 10% in FY18, reflecting the exposure to the semiconductor manufacturing market, and 5% in FY19. This results in a revenue uplift of 4.3% in FY18e and 7.3% in FY19e, and an increase in our normalised EPS forecasts of 3.6% in FY18 and 6.1% in FY19. We forecast that the company will close FY18 with a net debt position of £38.3m.
On a P/E basis, XP is trading at a premium to global power converter companies and at a small discount to UK electronics companies, with a dividend yield at the top end of the range. XP generates EBITDA and EBIT margins at the top end of its peer group. We see scope for upgrades to earnings estimates from cross-selling and further market share gains in healthcare. The company is well funded to make further acquisitions, while maintaining its strong operating profitability.