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Opinions on XP Power (XPP) as a portfolio addition

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TheMotorcycleBoy
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Opinions on XP Power (XPP) as a portfolio addition

#221649

Postby TheMotorcycleBoy » May 14th, 2019, 6:53 pm

Hi folks,

I have had XPP under my radar for the past couple of months, and I've toyed with the idea of making a purchase of some of their shares. I started out by doing some fundamental analysis linked here. I've also been reading a few bits and pieces about them online and wondered what folk thought them from this point in time.

My comments from the FA are margins are good 19-24%, and sales (CAGR 14%) and profits are steadily rising. What I did notice is a big capex and debt lump in the last reporting period, with a corresponding hit to the ROCE. In AR18 the reason behind the recent capex is partly explained:

Significantly, we completed the acquisition of Glassman High Voltage which expands our addressable market by an estimated $500 million and gives us a foothold in an exciting new product segment. In addition, we completed construction of our second manufacturing facility in Vietnam which will start production in Q2 2019.

From another thread Alaric said:
Alaric wrote:Over the past two years, the share price climbed to a peak about a year ago, then fell back a long way, but over the past three months has recovered and is climbing again. Is there anything external that might explain this? Takeover rumours and stake building perhaps.

I believe the shock to the SP was due to US/china tariff impositions, and the slight recent lift due the facility in Vietnam being tariff exempt. Plus the market is perhaps upbeat about the sales which will start to arrive from GHV?

Trying to keep up to date with them here is a small section from their their latest trading statement:

The Company has made a good start to the new financial year with order intake in the first quarter of 2019 of £54.6 million (2018: £51.2 million), up 7% on Q1 2018 on a reported basis and in line on a constant currency basis. On a “like for like” basis, removing currency effects and the contribution from Glassman High Voltage which was acquired in May 2018, orders decreased by 4%.

Group revenue for the three months to 31 March 2019 was £46.9 million (2018: £46.6 million), up 1% on Q1 2018 on a reported basis, or 5% below in constant currency. On a “like for like” basis revenue decreased by 12%.

Revenue growth in the first quarter was encouraging across the industrial, healthcare and technology sectors. The semiconductor manufacturing equipment sector continued to feel the impact of the widely reported slowdown with both order intake and revenue down on the strong comparatives of 2018.

So how badly should one view the decreases in recently reported LFL revenues?

Any other views on XPP appreciated,
thanks Matt

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Re: Opinions on XP Power (XPP) as a portfolio addition

#221768

Postby dspp » May 15th, 2019, 11:37 am

"GLASSMAN : Standard models include output voltages up to 500 kVDC with output power ratings up to 200 kW"

https://www.xppower.com/Applications/Hi ... ssis-Mount

This imho is the commoditised end of HV. So they are buying the squeezed middle and trying to work upwards. It might work .....

regards, dspp

TheMotorcycleBoy
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Re: Opinions on XP Power (XPP) as a portfolio addition

#221855

Postby TheMotorcycleBoy » May 15th, 2019, 5:38 pm

Thanks for your replies, Dave
dspp wrote:As part of a portfolio play in the sector it might be interesting. As a pure play it could be lonely.

Do you think you know something about its prospects that are not reflected in the share price ?

Definitely as a small part of the overall foli if at all.

Do you think you are close enough to 'gossip' to know better/faster than people who are. Bear in mind where it is headquartered: Asia. Could you trade out of it faster than they can ?

Is there enough upside to take on the risk ?

regards, dspp

I'm hoping for some upside, but I'm more thinking of a well run company with good numbers, and a growing dividend. Re. their HQ I didn't realise they were in Singapore....is that particularly OOI?

I see they revenue, is split 61% US, 31% Europe, 8% Asia. I believe they quite Brexit proof. I think they *could* be quite Trump proof, since they are in the process of being a second facility in Vietnam up.

dspp wrote:"GLASSMAN : Standard models include output voltages up to 500 kVDC with output power ratings up to 200 kW"

https://www.xppower.com/Applications/Hi ... ssis-Mount

This imho is the commoditised end of HV. So they are buying the squeezed middle and trying to work upwards. It might work .....

regards, dspp

From how they have acquired various other outfits it looks as if they are betting on becoming a one-stop shop for all power-supply requirement upto 500kV.

But who knows? I guess no one is immune to pricing pressure from the Chinese....was that what you'd implied with your earlier remark re. the location of their HQ?

thanks Matt

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Re: Opinions on XP Power (XPP) as a portfolio addition

#221869

Postby TheMotorcycleBoy » May 15th, 2019, 6:36 pm

dspp wrote:
doug2500 wrote:My understanding is that rather than being commoditised, XPP's products are designed into expensive, and sometimes critical, electrical devices. Once designed in it is then too much trouble to change the design so the incomes become a regular flow.

They have moved away from generic power supplies and are now more of a manufacturer than merchant. Their own products, and their higher value more efficient products are the faster growing and more lucrative end of the business.

All this , of course, is widely known so I have no edge at all, I never do. My advantage is simply being a small investor rather than institution.

I'm more than happy to hear a bear case if I've misunderstood, especially from an industry insider.


In many situations:
- You have to win the design competition.
- You also have to win the manufacture competition.
In the first round you are up against all the other folk making PSUs, all of whom (like XPP) are being fed from the same underlying silicon device houses (e.g. IXYS etc) so competitive advantage is scanty and short-lived. In the second round you are up against almost everybody in the first round, plus the big contract mfg houses such as Foxconn etc. And then you get to do it again. And again. And again. That is why XPP is trying to build advantage. But is it succeeding ?

I do some work in 500kV - 1200kV. The people I work with have pulled out of most sub 400kV segments because it is too commoditised. And believe me it can feel pretty commoditised at 800kV these days. As well as exposed to macro cycles....

Hope you two don't mind me moving this over to the share ideas topic.

Dave, you say exposed to macro cycles. Sometimes it takes me a moment to figure out why something like this can be cyclical.

I'm guessing that it's because firms such as these, get a customer who has their own product range, and then they (XPP) flog a big bunch of their stuff to the customer. They then book the revenue for these units over let's say a 4 month window. Then the customer and hence the money goes away for some time. Is that what you meant in terms of cycles?

If so, is this kind of risk mitigated slightly by these words from the AR:

A diverse customer base of over 4,500 active customers, with no one customer accounting for more than 14% of revenue.

Revenue annuity – although design-in cycles are often long, once our power converters are approved for use in our customer’s end equipment, XP Power enjoys a revenue annuity for the lifetime of the customer’s equipment, which is typically seven years.

?

I'm not trying to sell them to you :lol: . Or myself, necessarily, just trying to build up a picture, and maybe learn a bit too.

thanks Matt

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Re: Opinions on XP Power (XPP) as a portfolio addition

#221882

Postby Alaric » May 15th, 2019, 7:10 pm

TheMotorcycleBoy wrote: Sometimes it takes me a moment to figure out why something like this can be cyclical.


Is it to do with the idea that as a supplier it could be vulnerable to feasts and famines in the supply of capital equipment?

Possibly relevant link
https://www.investopedia.com/terms/e/economic-cycle.asp

TheMotorcycleBoy
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Re: Opinions on XP Power (XPP) as a portfolio addition

#221885

Postby TheMotorcycleBoy » May 15th, 2019, 7:17 pm

Alaric wrote:
TheMotorcycleBoy wrote: Sometimes it takes me a moment to figure out why something like this can be cyclical.


Is it to do with the idea that as a supplier it could be vulnerable to feasts and famines in the supply of capital equipment?

Possibly relevant link
https://www.investopedia.com/terms/e/economic-cycle.asp

Yeah sure.

I was thinking more in terms of product roll-outs.

I remember a small MK based firm I used to work for. At the time we made PC bus circuit cards hosting DSP+IP+TDM processor resources. One time (back in 2004ish I guess) we released a fantastic card, with like 10x the processing resources. It had very good uptake. The thing is in couple of years, all our customers had bought all they needed!!

Needless to say, we had to diversify fast, and yes personnel cost-cuts did have to happen in the meantime.

Matt

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Re: Opinions on XP Power (XPP) as a portfolio addition

#221889

Postby dspp » May 15th, 2019, 7:34 pm

Alaric wrote:
TheMotorcycleBoy wrote: Sometimes it takes me a moment to figure out why something like this can be cyclical.


Is it to do with the idea that as a supplier it could be vulnerable to feasts and famines in the supply of capital equipment?

Possibly relevant link
https://www.investopedia.com/terms/e/economic-cycle.asp


Correct.

But its not just big ticket capital goods ($m stuff) - electrification of trains, power lines, converters, etc. It is also the smaller ($k) stuff that dries up in downturns - electrification of cars, new washing machines, power tools, etc. Do we have a down turn coming ? I don't know, but it certainly is something I'd think about if I was buying this.

And if there is a downturn the general chitchat in the industry will know sooner than the quarterly company numbers will tell. And folk in Asia on the inside will know sooner than folk in the UK on the outside.

So what makes you think you have an inside edge in knowledge terms on them, if this goes down in a hurry ?

regards, dspp

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Re: Opinions on XP Power (XPP) as a portfolio addition

#221970

Postby TheMotorcycleBoy » May 16th, 2019, 6:39 am

dspp wrote:
Alaric wrote:
TheMotorcycleBoy wrote: Sometimes it takes me a moment to figure out why something like this can be cyclical.


Is it to do with the idea that as a supplier it could be vulnerable to feasts and famines in the supply of capital equipment?

Possibly relevant link
https://www.investopedia.com/terms/e/economic-cycle.asp


Correct.

But its not just big ticket capital goods ($m stuff) - electrification of trains, power lines, converters, etc. It is also the smaller ($k) stuff that dries up in downturns - electrification of cars, new washing machines, power tools, etc. Do we have a down turn coming ? I don't know, but it certainly is something I'd think about if I was buying this.

Sure. But surely then negativity applies to almost all of my investments, i.e. if there's downturn people will cut back on everything they can, surely?

Looking at our portfolio I'm thinking that the only things that won't suffer as bad in a downturn would be:

NG., LLOY, LGEN, ULVR. Since I'd argue that people will consume energy, require banking, insurance and household items in a *similar* way.

However anything relating to an extravagance e.g. Next NXT, Diageo DGE, Focusrite (audio equipment) TUNE, etc. will presumably be hit.

So since I can't predict that risk it seems that the best action is to not overexpose to one particular firm, and keep investments cheap and diverse, right?

And if there is a downturn the general chitchat in the industry will know sooner than the quarterly company numbers will tell. And folk in Asia on the inside will know sooner than folk in the UK on the outside.

Sure.

So what makes you think you have an inside edge in knowledge terms on them, if this goes down in a hurry ?

I definitely don't! But I believe that I have no more of an edge on XPP than on any other of possible investments.

So whilst I acknowledge that you are merely raising possible pitfalls, are your two arguments above, (possibility of a downturn, and lack of knowledge) not actually applicable to all manner of equity investments, rather than a focussed critique on this firm generally?

Matt

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Re: Opinions on XP Power (XPP) as a portfolio addition

#222106

Postby dspp » May 16th, 2019, 1:03 pm

Some firms are in commodity markets, so pretty much anyone can take a view on commodity cycles, or similar, and these cycles move fairly slowly. There is a symmetry of information understanding in the market in these sorts of things.

But this is in a specific narrow and highly competitive niche segment. It is a nice little technical engineering company I'll give you that, just the sort of Asian mittelstand that is pushing the world forwards. But look at the shape of the chart. When it goes down (or up) it happens fast and big. What news is coming to market and does it arrive at the whole of the market simultaneously (so you have an even chance), or do the moves get signalled in advance to a privileged audience and then the rest of us play catch up when it is too late. So - for example - someone sitting in (say) IXYS knowing that $XX mln of semiconductor production get booked by XPP can pretty much be sure that XPP got a big order win. By knowing the normal amount of order wins, and by knowing how unusual this is, they get a chance to enter the market. It isn't directly insider trading ordinarily (but it could be in some circumstances) and it is an issue in many areas. Some more so than others. Understanding those rapid chart corrections is important. Is there an asymmetry of information in the market ?

If all you are doing is putting (say) 1% of your portfolio out, then it doesn't really move the needle on your portfolio so is the risk worth it at all. Why not just go with an index tracker in the sectors that interest you so as to get sector exposure without overloading accidentally on individual company risk.

On the other hand if you are putting (say) 10% of your portfolio out you could get a good return if you call it right, but it is a higher risk. So do you have the information you need to manage that risk ? Clearly you are beginning to put the toolchain together to analyse the risk (one part of that is crunching the numbers, you are now doing that, and doing a very good job if I may say so) so the next part is analysing your information gaps and assessing whether you want to take on the risk.

It is exactly this approach that has caused me to take a position in HUR and in TSLA, and it was my not doing it right that caused me to put my toe in the PMAD water and that quickly pull it back out. Because on PMAD I had forgotten about asymmetric information risk and how to manage it and when to walk away. Until I remembered and did ! In due course I will find out whether I am managing the risks correctly on HUR and TSLA.

It is your money and your call. All I can do is be cynical and point out downsides with a view to help you correct for possible over optimism.

regards, dspp

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Re: Opinions on XP Power (XPP) as a portfolio addition

#222193

Postby TheMotorcycleBoy » May 16th, 2019, 6:00 pm

Thanks Dave,

This is useful to me, though I did have to look up a few things!

dspp wrote:Some firms are in commodity markets, so pretty much anyone can take a view on commodity cycles, or similar, and these cycles move fairly slowly. There is a symmetry of information understanding in the market in these sorts of things.

I need to read up on this. Maybe this, or is this just fluff?

But this is in a specific narrow and highly competitive niche segment. It is a nice little technical engineering company I'll give you that, just the sort of Asian mittelstand that is pushing the world forwards. But look at the shape of the chart. When it goes down (or up) it happens fast and big. What news is coming to market and does it arrive at the whole of the market simultaneously (so you have an even chance), or do the moves get signalled in advance to a privileged audience and then the rest of us play catch up when it is too late. So - for example - someone sitting in (say) IXYS knowing that $XX mln of semiconductor production get booked by XPP can pretty much be sure that XPP got a big order win. By knowing the normal amount of order wins, and by knowing how unusual this is, they get a chance to enter the market. It isn't directly insider trading ordinarily (but it could be in some circumstances) and it is an issue in many areas. Some more so than others. Understanding those rapid chart corrections is important. Is there an asymmetry of information in the market ?

I assume IXYS is this?

I see what you mean. There are always people that know more than me out there. And yes the chart is worrying - in terms of this asymmetry of info thing, that is people will pick things up faster than others.

I was caught out myself with ZYT (Zytronic) I reviewed these people last summer and observed they were priced at about 500p. And that they had been at 600p back in 2017. Their operating numbers looked good, they were cash rich etc. So I bought some, fortunately *only* £800 worth. Then it fell gradually as autumn commenced. Then they issued a "sales" warning (about Dec I think) and it dropped to about 300p. It had since then, what I thought started to recover, and I gambled on picking up another £800 at 350p a month or so ago. But then another warning was issued a week or 2 ago. And it fell again. So I'm starting to hopefully learn that if you have an AIM share, to only average down when overwhelmed by positive news!

I ended up selling our first holding (in separate ISA) and losing almost £400 there, and have kept the bunch I bought @ 350p. Only time will tell whether I've done the right thing, I suppose.

If all you are doing is putting (say) 1% of your portfolio out, then it doesn't really move the needle on your portfolio so is the risk worth it at all. Why not just go with an index tracker in the sectors that interest you so as to get sector exposure without overloading accidentally on individual company risk.

That's a good point. I'm contemplating doing that soon for one of these green energy ITs.

On the other hand if you are putting (say) 10% of your portfolio out you could get a good return if you call it right, but it is a higher risk. So do you have the information you need to manage that risk ? Clearly you are beginning to put the toolchain together to analyse the risk (one part of that is crunching the numbers, you are now doing that, and doing a very good job if I may say so) so the next part is analysing your information gaps and assessing whether you want to take on the risk.

Yes, the numbers part is the easy bit for me. The hard part is the research. I've since joined ADVFN, investegate, and II all in a quest to find more information about potential buys. I know I once said that investing was like shopping.....but it's like a form of shopping where the goods can self-destruct in the shopping bag on the way home!!

It is exactly this approach that has caused me to take a position in HUR and in TSLA, and it was my not doing it right that caused me to put my toe in the PMAD water and that quickly pull it back out. Because on PMAD I had forgotten about asymmetric information risk and how to manage it and when to walk away. Until I remembered and did ! In due course I will find out whether I am managing the risks correctly on HUR and TSLA.

I managed to find HUR and TSLA. I think you may have made a good call on HUR by the way! But I couldn't find who (or what) PMAD is.

It is your money and your call. All I can do is be cynical and point out downsides with a view to help you correct for possible over optimism.

Many thanks, and I respect you for doing this! I've still got XPP on my radar, but no more than £1200 at first, and I'm going to bide my time (the next couple weeks) and consider alongside a couple of other candidates.

I already have BOY (bodycote) which I might top-up. I might upload my FA numbers on them this w/e. And I'm thinking of looking at WEIR (for some reason I pick a lot of engineering firms, I think it's from my reading Buffett, of choosing an investment that you *almost* understand) and perhaps Cranswick.

thanks again,
Matt

regards, dspp[/quote]

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Re: Opinions on XP Power (XPP) as a portfolio addition

#222200

Postby dspp » May 16th, 2019, 6:25 pm

Petromatad, see posts on energy board


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