First Berlin – PSI AG Research Update (06/11/2019)

First Berlin Equity Research has published a research update on PSI AG (ISIN: DE000A0Z1JH9). Analyst Simon Scholes reiterated his ADD rating and increased the price target from EUR 19.00 to EUR 22.40.

Highlights of a strong set of Q3/9M 2019 results were double digit rises in orders and sales at the Energy Management division's electrical energy and oil and gas businesses during the first nine months of the year. One of the main drivers of growth at PSI's electrical energy business is investment in smart grids to accommodate the increasing proportion of electricity generated in Germany through renewable energy sources. 36% of electricity consumed in Germany derived from renewable sources in 2017. The German government's recently published Climate Protection Programme 2030 outlines measures to promote the achievement of a figure of 65% by 2030. Meanwhile, the decision taken earlier this year to cease coal production in Germany by 2038, is boosting investment in PSI's gas network control systems. The order intake in the public transport business was down during the first nine months of 2019 due to an unusually high order figure of €11.4m during 9M/18. However, investments planned by the German government to improve the attractiveness of public transport and electrify the bus fleet suggest a bright future for this business. Against this background we now see Energy Management sales growing at a three year CAGR of 7.0% over the period 2019-2022 (previously 4.4%). Our new price target is €22.40 (previously: €19.00). We maintain our Add recommendation.