PSI: Entering 2014 In Better Shape
Edison | Apr 02, 2014 05:31AM ET
While Q4 revenue performance was muted, improved margin performance suggests that we now seeing the back of the troubles that hit Q2 and Q3. Investment in new products and the progressive transitioning of the business to a more product-driven model give scope for margin expansion substantially beyond our forecast level. Thus we feel the shares remain interesting for those with a recovery remit.
Psi Group's (PSIG.OL) revenue performance remained muted in Q4 with sales down by 12.8% y-o-y at €47.2m, meaning that FY full year revenues at €176.3m were below our €184.1m estimate. Within this context, profitability performance improved markedly on Q2 and Q3, with Q4 contributing €3.4m of the FY €4.2m full year operating result, although still below our €4.9m estimate. A hefty €2.7m tax charge (see p2) meant that adjusted EPS at 10.6c was 44% below our 19.2c estimate.
h3 2013’s investment should improve returns in 2014/h3Notwithstanding the weakness in the German energy market, the significant margin compression witnessed in 2013 stemmed largely from the combination of execution issues and accelerated product investment, aimed at opening up new opportunities in the future. We believe that action has been taken to reduce execution risk in particular; integration contracts are wherever possible now being structured on a time and materials basis rather than fixed price. Investment in accelerating product development in the fields of rail energy and logistics transport management systems, along with the longstanding investment in product to manage the complexities of renewable energy feed-in will hopefully translate into new customer orders over the course of 2014 as well.
h3 Valuation: Remains an interesting recovery play/h3Our estimate changes are shown on page 4. While our sales estimates have been reduced slightly (3% in 2014) our profitability estimates are essentially unchanged. This reflects the improved margin performance in Q4 and initiatives to improve profitability, perhaps at the expense of some top-line growth. Nevertheless, operating margin should have scope to expand substantially above our forecast level (6.2% for 2014 and 7.5% for 2015), potentially to the mid-teens level if efficiency initiatives work well. So while the shares remain valued on recovery multiples (2015 EV/sales 1x, P/E 19.1x), given the scope for margin expansion, we feel that the shares remain a very interesting proposition for investors with a recovery remit.
Get The News You Want
To Read the Entire Report Please Click on the pdf File Below
/h3
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.