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The acquired high margin business looks a neat technology design fit

XP Power (XPP) £35.90

Gain to date: 63.8%

Original entry point: Buy at £24.11, 6 July 2017

We sensed a new acquisition was incoming at XP Power (XPP) and sure enough it arrived on 10 May. The power switching technology designer is using bolstered £125m debt facilities in paying £31.8m to buy Glassman High Voltage, expanding the product range into specialised high voltage and high powered products.

This should help the enlarged XP engage with new customers but equally important, supply a broader range of technology solutions to
existing accounts.

Importantly, analyst research suggests that Glassman has cleverly positioned itself away from pockets where competition, and presumably price pressure, is most intense. Researchers at investment bank Stifel also believe underlying gross margins run at roughly similar levels to XP’s 46.5%.

Using debt instead of equity to fund the deal means no dilution for existing shareholders. It also sees earnings per share estimates raised 4% for 2018 and by 9% in 2019, implying a price to earnings multiple of 20.3, falling to 18.4 next year.



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