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№ 162 7 filings · 2023-11-06 → 2026-04-23

XP POWER LIMITED

XPP
Industrial Goods and Services Market cap £528m Overall fit 615 /1000

Genuine WFE-via-AI exposure and meaningful operating leverage with a now-clean balance sheet, but valuation already prices a recovery (~78x trailing adjusted EPS) and the Comet overhang plus repeat dilution cap the score.

Fair value range 1,500p–1,900p Mid case · £476m
Absolute upside -9.9% vs current market cap
Conviction 3/5 confidence in fair call
Supports the call
  • Clear adjusted-to-reported reconciliations and audited disclosure
  • Strong leading indicator: Q1 2026 book-to-bill 1.53x, order intake +48% cc
  • Balance sheet repaired (1.2x leverage) with RCF extended to 2028/2030
Limits the call
  • Mid-cycle earnings is a wide range — trough is fresh, peak is 3 years and a dilution ago
  • Unquantified Comet legal liability and recurring 'non-recurring' adjusting items
Methodology

Mid-cycle adjusted EPS × industrial multiple, cross-checked vs EV/EBITDA

In one line · bull case

Power-conversion supplier to AI-driven WFE OEMs with order book inflecting (book-to-bill 1.53x in Q1 2026) and ~£40m+ of operating-leverage upside if the cycle holds — but valuation already discounts much of it.

In one line · biggest risk

The Comet legal liability remains unquantified and could absorb a meaningful chunk of the recovery in cash terms.

Drivers
AI beneficiary 68 /100
~37% revenue from Semi Mfg Equipment OEMs; management explicitly cites HPC/AI as driver; genuine picks-and-shovels exposure but one step removed from end-user AI capex.
Operating leverage 65 /100
Fixed manufacturing footprint, gross margin climbing from 41% to mid-40s target, Malaysia plant complete and idle — incremental volume should drop disproportionately to profit.
Earnings vs expectations 50 /100
One major 2023 profit warning followed by in-line/small beats off a reset base; not enough clean data to call a beat-trend pattern with confidence.
Growth momentum 62 /100
Reported revenue declined in 2025 but Q1 2026 orders +48% cc and book-to-bill 1.53x is a clear inflection — momentum turning positive.
Moat 50 /100
Designed-in OEM relationships and 5-7 year programme annuities provide stickiness, but power-conversion is contestable and they cite c.1% share loss in RF exit.
Earnings quality 45 /100
Persistent gap between adjusted (£17.3m) and reported (£0.7m) operating profit; £16.6m of adjusting items in 2025 and similar in 2024 reduces confidence in 'adjusted' as the true run-rate.
Management quality 52 /100
Navigated a balance-sheet crisis, refinanced credibly, decisive RF exit; but two dilutive placings and 23.9% AGM remuneration vote against signal governance friction.
Cyclicality 75 /100
WFE skew plus Industrial Technology makes this materially cyclical, evidenced by the 2024-25 destocking trough and 2026 order surge.
Leverage 32 /100
Net debt £41.5m, 1.2x adjusted EBITDA, RCF maturity extended; conservative balance sheet after the deleveraging.
Value-trap signals · 5
  • Two dilutive equity placings in three years (2023, 2025) — share count up ~42% since 2022
  • Dividend suspended since 2023 with no near-term restart
  • Two consecutive years of reported losses; recurring 'non-recurring' restructuring/exit charges
  • Unresolved Comet litigation with £11.7m bond posted
  • 23.9% AGM vote against remuneration report (April 2026)

XP Power Limited (XPP) — Investment Research Note

Executive summary

XP Power designs and manufactures power-conversion controllers sold into Semiconductor Manufacturing Equipment (~37%), Industrial Technology (~38%) and Healthcare (~25%) OEMs, with multi-year designed-in revenue annuities. Over the period covered, the business has moved from a 2023 funding crisis (1,150p emergency placing, suspended dividend, breached covenant headroom) through a destocking trough in 2024-25 to a clear cyclical inflection — Q1 2026 order intake of £79.1m was up 48% in constant currency and book-to-bill jumped to 1.53x 2026-04-23 Q1 trading update. The single most important valuation point today is that the shares already discount a recovery: at ~1,752p the stock trades on ~78x trailing 2025 adjusted EPS of 22.5p, so the bull case depends on a robust WFE upcycle in 2026-27 returning operating profit toward the £40m+ peaks of 2021-22, not the current £17.3m run-rate.

Fair value estimate

  • Methodology: mid-cycle earnings multiple cross-checked against a recovery EV/EBITDA.
  • Key assumptions: mid-cycle revenue £275-300m (between 2025 trough £230m and 2022 peak ~£292m); mid-cycle gross margin 44-46% (consistent with H2 2025 43.9% and stated "mid-40s" target 2026-03-03 FY 2025); mid-cycle adjusted operating margin 12-14%; ~£3-5m net interest post-deleveraging; 25% normalised tax (vs 34.7% in 2025); 28.0m shares.
  • Output: mid-cycle adjusted EPS of ~75-100p. Applying 16-20x (industrial WFE-exposed quality multiple) gives 1,500 – 1,900p per share, or a market-cap range of ~£420m – £535m.
  • Mid-point: ~1,700p, implying ~£476m market cap.
  • Vs latest £491.1m: broadly fair, with the mid implying a ~3% downside; the range spans ~14% downside to ~9% upside.

Sector context

ICB Industrial Goods and Services is correct, but the bulk of the equity story now rests on the Semiconductor Manufacturing Equipment value chain — XP is a critical-component supplier to WFE OEMs whose own demand is driven by AI compute capacity build 2026-03-03 FY 2025. Quality is broadly in line with sector peers: similar capital-light, designed-in model, somewhat higher cyclicality than typical industrials due to the WFE skew, balance sheet now in line after 2023/2025 deleveraging. Closest listed comparables: discoverIE Group (DSCV), XPEL/Spectris (SXS) at a wider level, and US-listed Advanced Energy Industries (AEIS) which is a more direct read-across for WFE power.

Investment thesis (3 bullets)

  • Direct, demonstrable AI WFE pull-through is now visible in orders. Q1 2026 order intake of £79.1m was 48% above prior year in constant currency, with "particularly strong demand from Semiconductor Manufacturing Equipment" and a book-to-bill of 1.53x 2026-04-23 Q1 trading update. Management cites HPC/AI as the structural demand driver 2026-03-03 FY 2025.
  • Operating-leverage spring is loaded. Adjusted gross margin already lifted from 41.0% (2024) to 41.4% in H1 25 and 43.9% in H2 25, with mid-40s targeted as utilisation recovers; the new Malaysia plant is complete and ready to absorb volume without further fixed-cost build 2026-03-03 FY 2025.
  • Self-help and balance-sheet repair are largely done. Net debt fell from £93.5m to £41.5m in 2025 (1.2x leverage, vs 3.5x covenant), the China plant is closed, the loss-making RF business is being run off, and the RCF was refinanced/extended to 2028/2030 2026-03-03 FY 2025. The platform is now positioned to convert order-book strength into earnings without further dilution.

Key risks (3 bullets)

  • Comet legal case overhang. £11.7m bond posted in 2025, plaintiff's fees + interest already ruled against the Group, appeal heard September 2025 but no verdict at FY date; cumulative cash and P&L impact is material and binary 2026-03-03 FY 2025.
  • Customer/sector concentration. A single semiconductor customer was £48.6m of 2025 revenue (~21%), and a sustained downturn or share loss with one of a small set of WFE OEMs would meaningfully impair earnings recovery 2026-03-03 FY 2025, Note 2.
  • Persistent adjusting-item drag and high effective tax rate. Adjusted vs reported operating profit gap was £16.6m in 2025, with restructuring, RF exit, and China closure all "non-recurring"; 2025 adjusted ETR was 34.7%, and reported earnings have been loss-making for two consecutive years 2026-03-03 FY 2025.

Operating leverage

XP runs a fixed manufacturing footprint (Vietnam, Malaysia (now complete), North America, Germany) producing ~80% of revenues in-house 2026-03-03 FY 2025, risk section. Roughly 58% of revenue is cost of sales at current scale and gross margin is climbing back toward the mid-40s; a £10-20% revenue beat against current £230m would carry a heavily fixed cost base. Concretely: 2024-vs-2025 saw a £17m revenue decline (-7%) but adjusted operating profit fell £7.8m, implying a ~45% incremental contribution margin on the way down. Reading that in reverse, a £30-50m revenue uplift in 2026-27 (consistent with the Q1 order book) would plausibly add £13-22m to adjusted operating profit — i.e. potentially doubling 2025's £17.3m. The Malaysia plant is now spare capacity, and central overhead of c.£16m doesn't scale with revenue 2026-03-03 FY 2025, Note 2. This is a textbook capacity-constrained industrial with real long-tail leverage if AI WFE capex runs hot.

Value-trap signals

  • Repeated dilutive equity issuance (2023 £44m placing at 1,150p, 2025 £39.6m placing) — shareholder count is up ~42% since 2022, diluting per-share recovery.
  • Dividend suspended since 2023 with no restart signalled until leverage hits 0-1x.
  • Two consecutive years of reported losses despite adjusted profit, with chunky annual "non-recurring" items that keep recurring.
  • 23.9% of votes against the remuneration report at the April 2026 AGM — a governance amber flag 2026-04-23 AGM result.
  • Unresolved Comet litigation with material cash bond already posted.

Earnings vs. expectations

Guidance through the period has been delivered but at progressively reset levels. 2023's October trading update was a profit warning that triggered the emergency placing. 2024 results came in roughly in line with the post-warning reset. The January 2026 trading update confirmed 2025 "in line" with consensus £17.3m adjusted operating profit / 21.4p adjusted EPS — and final 2025 results delivered £17.3m / 22.5p, a small EPS beat 2026-01-19 trading update, 2026-03-03 FY 2025. Pattern: one major miss (2023), then a series of in-line-to-marginal-beats off reduced expectations, with order intake now visibly inflecting ahead of guided 2026.

Conviction

Conviction: 3 / moderate. Anchors: clean, audited disclosure with explicit reconciliation of adjusted-to-reported metrics; a stable business model with multi-year designed-in revenue; a clear, recent (Q1 2026) leading indicator of demand. Caveats: fair value is highly sensitive to the assumed mid-cycle earnings level — the trough is fresh, peak earnings are ~3 years old and a different share count, and the Comet legal liability is unquantified. A reasonable analyst could justify 1,300p or 2,000p depending on how aggressively they extrapolate the Q1 order book.

Filings consulted · 7

Every document the LLM read for this note. Click any row to open the source.

  1. 2026-04-23Result OF Agm2026-04-23_9535248_result-of-agm.md0.30
  2. 2026-04-23Q1 Trading Update2026-04-23_9533681_q1-trading-update.md0.85
  3. 2026-03-03Annual Results For The Year Ended 31 December 20252026-03-03_9454677_annual-results-for-the-year-ended-31-december-2025.md1.00
  4. 2026-01-19Full Year Trading Update2026-01-19_9363945_full-year-trading-update.md0.85
  5. 2024-06-17Acquisition Rule 12 OF Singapore Takeover Code2024-06-17_8263202_acquisition-rule-12-of-singapore-takeover-code.md0.49
  6. 2024-06-14Acquisition Rule 12 OF Singapore Takeover Code2024-06-14_8260868_acquisition-rule-12-of-singapore-takeover-code.md0.49
  7. 2023-11-06Announcement OF Funding Plan And Placing2023-11-06_7863406_announcement-of-funding-plan-and-placing.md0.32

This research note was authored by a large language model after reading 7 regulatory filings published between 2023-11-06 and 2026-04-23. Each citation refers to a specific RNS announcement in the underlying data set. The note is an opinion, not advice. Do your own work before risking capital.