Power switching components supplier XP Power (XPP) is on a roll. In a first quarter trading update the £300 million cap confirms that the improved order environment seen in the second half of 2013 has spilled over into the early part of 2014.
'Group revenues in the three months to 31 March 2014 were up 7% from those achieved in the same period a year ago,' the company says. Strip out currency wobbles and the rise would have been an even better 11%. That's encouraging to say the least given that analysts are largely forecasting low single-digit revenue growth for the full year.
But the progress is not confined to the top line. Of even more importance is improving profit margins, largely as orders flow to fill capacity in its manufacturing facilities, particularly its new one in Vietnam. That's fired the shares to a near 5% rise today, to £15.96. While that's a way off the £17.75 levels in February, the decline is in line with many capital kit suppliers, such as Spectris (SXS) and Renishaw (RSW), and beats the FTSE All-Share.
Today's news will not be so surprising to those that have been paying attention. I have twice flagged the improving operational performance trends, and a better economic backcloth as international manufacturing demand finally starts to recover, first on our website in January, and again in Shares the following month.
While still a bit early for analysts to have the confidence to raise forecasts, it's clearly on the agenda, perhaps when XP Power updates on its half-year progress in July. 'We leave our forecasts unchanged,' says Investec today, before adding that 'if the current improving trends continue, we see upside risk to our forecasts as the year progresses.'
With XP Power continuing to pay down its debt and maintain its quarterly dividend run rate – it's paying 12p per share for the first three months, a 9% rise year-on-year – this looks an increasingly reliable growth company well worth watching.