Berenberg hikes target price on XP Power

Berenberg said XP Power remained a UK industrials "top pick" in a market where "growth at a reasonable price" was hard to come by.

XP Power delivered an "impressive" set of interim results and set out an encouraging outlook, as far as Berenberg was concerned, with organic orders growing by 45% year-on-year thanks to a recovery in semiconductors and "exceptional demand" for Covid-19-related healthcare applications.

The German bank said despite XP shares rising by 40% year-to-date, the group still trades on 23x full-year 2021 earnings, which it believes to be "reasonable" given its growth prospects, returns profile, strong balance sheet and favourable end-market exposure in both the near and long-term.

With organic revenues up 4% year-on-year and XP's interim 2020 book-to-bill ratio of 1.39x underpinning "healthy prospects" for both the second half and the coming year, Berenberg also reiterated its 'buy' rating on the firm and upgraded its 2020 and 2021 earnings per share estimates by 10% and 6%, respectively.

"The Q2 dividend has been reinstated, reflecting management's confidence in the near-term outlook," added the analysts.

"While the industrial markets are expected to remain weak (we model down by 20% year-on-year), we believe the decline will be more than offset by the aforementioned strength in healthcare and semiconductor."