Liberum initiates coverage on XP Power at 'buy'

Analysts at Liberum initiated coverage on electrical component manufacturer XP Power at 'buy' on Thursday, stating that an acceleration in earnings growth would drive a re-rating in the group's shares.

Liberum expects XP Power's earnings growth to accelerate from its 9% five-year average to 15%, which its analysis showed should drive a re-rating towards quality peers.

"Our peer group analysis shows how stronger earnings growth is the key for XP Power to re-rate towards quality industrials and more in line with its high EBIT and FCF margins," said Liberum.

Organic earnings growth was projected to increase 2.5 times to 11-12% as 350 basis points of margin expansion between 2019 and 2022 finally converts its leading sales growth into earnings.

Strong free-cash-flow alongside should also drive further growth through bolt-on mergers and acquisitions.

"On our estimates, that equates to a target price of 5,130p, and with 20% upside to the current share price, we initiate on XP Power with a 'buy' recommendation," said the analysts.