Berenberg lowers target price on XP Power

Analysts at Berenberg lowered their target price on power supply solutions group XP Power from 1,700.0p to 1,400.0p on Tuesday but said its thesis on the stock was unchanged.

Berenberg said XP Power’s trading update on 16 February was "disappointing", guiding to a full-year 2024 performance that was "significantly below market expectations", while also revising down FY23 profitability on account of financial close processes identifying additional impairments and amortisation-related items.

The German bank noted that the speed of deterioration in trading prospects, having last heard from management on 10 January, was "a surprise" and raises likely questions over credibility following October's profit warning and resulting equity raise.

However, while this will weigh on the shares in the short term, Berenberg thinks its thesis remains largely unchanged, albeit from a lower starting point in both fundamentals and share price.

"A recovery in the semiconductor industry capex cycle and an improving macroeconomic backdrop, both expected at some point in H2 2024, could trigger an upgrade cycle from now-reset conservative forecasts, with the company set to rebuild from trough margins," said the analysts.

"We think a 15x P/E multiple for FY 2025 as a recovery year remains achievable, and so reiterate our 'buy' recommendation but with a reduced price target of 1,400.0p."

Reporting by Iain Gilbert at Sharecast.com