On track in Q1
Despite geopolitical and economic headwinds, PSI's (HN:PSI) Q1 trading update 29 April 2015 shows growth in bookings, sales and profitability. While it is still early in the year, the company looks on track to reach our full-year estimates. Management’s drive to transform the business through consolidating products onto a single platform and moving from a services-led to a product-led software revenue model remains the key value driver.
Order intake in Q1 (typically the peak quarter for new orders) was up 11% year-onyear at €62m. Total order intake over the past four quarters at €186m increased by the same amount. While early days, sales of €43.2m (+6% y-o-y) and EBIT of €2.2m (+4% y-o-y) both look on-track to reach our full-year €185m and €11m estimates. Robust demand from the German electrical energy, gas transportation and aluminium industries offset weakness from the steel industry and for PSI InControl in South-East Asia. Both Q1 and full-year operating profit will be suppressed by development work on the material extraction and energy trading product sets, which are expected to continue into Q415 and Q116 respectively.
Our estimates are unchanged. PSI’s rating is trading on acute recovery multiples, with a low EV/sales (1.2x) but an un-compelling P/E (24x), based on our FY15 EBIT margin estimate of 6%. However, with good execution on the transformation plan, we believe that EBIT margins can be expanded to the mid-teens level in four to six years. Our DCF analysis shows that, in most circumstances, expansion of operating margins to 12% should justify a share price higher than €15, while achieving 15% would justify a share price closer to €20.
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