A popular small-cap winner set for double-digit gains

A popular pick among stockmarket gurus over recent months, XP Power has repaid the faith with another better-than-expected results performance.

Record order intake and revenues for the six months to 30 June were assisted by the weakness in sterling as profits jumped 11.6% to £14.4 million. Chairman James Peters said the group now anticipates its full-year performance will be comfortably ahead of current expectations.

This triggered a rise of as much as 9% for the company's share price to touch £27 before settling back at 2,633p. It continues to trade near to a record high after a series of recent earnings upgrades.

So, what makes XP special? In a nutshell, the company designs and manufactures power converters for use in the industrial and medical equipment sectors, where reliability is essential.

The global power converter market is highly fragmented and made up of hundreds of thousands of customers. XP estimates the available market is £1.5 billion, with around 50 manufacturers of power solutions capable of operating on a worldwide basis.

XP's stated aim is to be the leading provider in the mid-tier of the power supply industry.

Having enjoyed success with its newer product introductions, the group's resulting strong revenues performance is enabling it to re-invest in expanding engineering capabilities and in fuelling future growth.

In fact, broker Investec believes the encouraging trends observed in the first and second quarters are likely to continue for the rest of the year.

Analyst Marc Elliott said growth is occurring across all activities, giving confidence in the resilience of the group and scope for further upgrades if trends continue.

He added: "This is the benefit of the hard work in the last few years in gaining approvals and winning contracts."

Elliott has lifted his full-year earnings per share (EPS) forecast by 7% to 131.8p, up 16% from the January forecast. Given the latest updated estimates, Investec's price target is now 3,100p.

XP Power's move into manufacturing in 2006 was key to the group's success, particularly among blue-chip customers who value a close relationship with suppliers in order to ensure the highest levels of quality and agility.

Alongside its original Chinese manufacturing facility near Shanghai, a Vietnamese site is now meeting demand for magnetics.

The Vietnam facility helps XP to mitigate the continued rise of Chinese labour costs and the appreciation of the Chinese renminbi.

XP makes quarterly dividend payments, with the total pay-out for the first half increasing by 7% to 31p a share.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.