PSI – QuickView

Although management narrowed the FY EBIT guidance range to the lower-end, this should not have come as a huge surprise given the well-flagged temporary challenges that PSI faces in the German electrical energy management markets. We note that production management revenues held up well during Q3 and infrastructure software continued on a strong growth path. In spite of expected continued short-term headwinds, the stock trades at an attractive level, given the strong structural top-line opportunities as well as margin leverage going forward.

Short-Term Continued Weakness In Energy
Q3 headline revenues and EBIT came in flat y-o-y with energy revenues down 9% reflecting weak electricity sales, but continued healthy oil and gas dynamics and some encouraging contract wins in Poland. Production management revenues were up 1%, with a strong metals business and growing international order intake. Based on contract wins in PSI South East Asia and Poland, the infrastructure division reported 22% growth in Q3. While management continues to expect a seasonally strong Q4, the FY EBIT guidance was lowered to the lower end of the €13-16m range.

Encouraging Outlook Into 2013
Key topics for 2013 are in our view: (1) the launch of the new electrical energy business control system core; and (2) growth initiatives in international sales, particularly in the energy division reducing the dependence on Germany. Although commodities markets are currently experiencing a slowdown, we believe concerns with regard to PSI’s metals business are unfounded given a strong order backlog.

Valuation Reflecting Earnings Growth Opportunities
PSI’s 2012 P/E of 22x is in our view still attractive, reflecting the strong medium-term growth opportunities (eg in the German energy network segment as well as sales opportunities in developed and emerging markets), combined with substantial margin leverage coming from a focus on licence revenues and off-shore delivery.

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