Power switching components supplier XP Power (XPP:AIM) is in a rich vein of form, delivering yet another upbeat assessment of past trading and future prospects. Today's 2% share price rise to £17.28 may seem modest considering the £330 million cap's confirmation of 8% growth in revenues last year (6% if you strip out currency ebbs and flows), a very creditable performance against largely lacklustre appetite for capital investment projects in general during 2013.


Today's market reaction must also be drawn against an impressive three-month run for the stock, up from £13.55 (3 Oct) when Shares flagged the likelihood of a, then imminent, positive third quarter trading update. So it proved then, as now. What is particularly striking is that, reading between the lines, much of last year's progress appears to owe little to economic recovery and beefier client budgets. 'This growth has been predominantly driven by increasing market share,' claim Investec's number crunchers who are bullish about 2014's trading potential.

XP POWER (DI) - Comparison Line Chart (Rebased to first)

Volume increases are helping. This means XP is able to sweat its assets harder. Its China-based manufacturing facility is seeing better utilisation while the relatively-new Vietnam magnetic plant turned profitable during 2013. This would seem to imply that as economic recovery starts to become more apparent in business budgets XP's own chances of accelerating growth should improve further.


Investec is anticipating 3.5% revenue growth in 2014 to £104.3 million. Merely matching last year's revenue growth level (on a currency-neutral basis) would imply something in the order of £107 million to £108 million, perhaps tipping the earnings per share scales at 105p or so, most of which should convert to cash.


Although there will be the yearly research and development (R&D) investment cash drain, if you assume that revenue growth levels are maintained then dividends could be better than forecast. XP typically pays out around two-thirds of earnings as dividends, which implies this year's payout could be nearer 70p per share rather than the 61.5p forecast by Investec. While that is merely a hypothetical suggestion, it does offer food for thought.



Issue Date: 10 Jan 2014