XP Power shares sink on profit warning

Power control components manufacturer XP Power saw its stock price tumble on Monday after it warned on profits, saying that trading over the third quarter had been below internal expectations.

XP Power said weaker end-market demand had resulted in some customers deferring shipments into 2024, while "economic uncertainty" in China had also led to a reduction in demand.

The London-listed group cautioned that these conditions were likely to continue for the remainder of the year, leaving outlook below its prior expectation, with operating profit for the year ended 31 December 2023 now expected to be broadly similar to last year and third-quarter revenues seen approximately 2% lower year-on-year at roughly £75.0m.

In light of current trading conditions, XP said had implemented "a wide range of actions" aimed at reducing costs, conserving cash, and maximising headroom in its borrowing facilities.

While XP said it continued to be in compliance with its banking covenants, it is now expecting net debt/adjusted underlying earnings to be "close to or above current covenant limits in the near term".

"The group is initiating dialogue with its lenders to seek covenant and liquidity flexibility through the year-end and into 2024. We are also exploring other near-term options to strengthen the balance sheet, to bring leverage back to within our target 1-2x net debt/adjusted EBITDA range, restoring the flexibility necessary to allow the group to take full advantage of the strong organic growth opportunities across the business," said XP.

"Notwithstanding these short-term challenges, the board believes XP’s clear strategy leaves the group well positioned to grow ahead of its end markets, drive further market share gains, improve profitability and deliver strong cash generation."

As of 0825 BST, XP Power shares had slumped 40.16% to 1,412.28p.

Reporting by Iain Gilbert at Sharecast.com