Deutsche Bank has upgraded XP Power, the power conversion equipment maker, to 'buy' from 'hold' and raised its target price from 1400p to 2285p, implying 30% upside from the current 1754p.
Analyst Thomas Elgar said the upgrade followed a third-quarter update that confirmed robust order intake, which accelerated to 93% year-on-year on an organic constant currency basis, led by semiconductor markets.
The 22% sequential step-up in orders on the same basis was ahead of the bank's expectations, Elgar said.
Deutsche acknowledged that significant order growth had been widely anticipated, but said the scale of the sequential acceleration was a positive surprise.
However, Elgar cautioned that further signals of demand pull-forward from XP's semiconductor customers made it likely the company had reached peak organic order growth momentum.
Despite that warning, he said the market appeared already aware of the risk, pointing to a muted share price performance through the third quarter and after the results, with the stock trading around 16% below its recent high.
The investment case now rests on operating leverage, with Deutsche arguing that the next stage of the growth story will be driven by improving margins as revenue scales up.
XP Power supplies power conversion equipment to manufacturers in the semiconductor, industrial and healthcare sectors, and has benefited from a sharp recovery in chip equipment spending as customers rebuild inventory and accelerate capital investment.
The stock trades on the London Stock Exchange under the ticker XPP.
