First Berlin – PSI AG Research Update (30/03/2021)

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 26.00 to EUR 31.00.

2020 results were close to our forecasts showing a 3.3% decline in sales to €217.8m (FBe: €223.6m; 2019: €225.2m) and a 13.1% decline in EBIT to €14.9m (FBe: €15.4m; 2019: €17.2m). 2020 EBIT was higher than guidance given in March 2020, which was for a decline of up to 20%. The order intake fell 3% to €229m (2019: €236m), while the year-end order backlog was 4.9% higher at €149m (2019: €142m). The order intake fell last year because reduced activity in the gas grids and pipelines business and the automotive/industry and industrial logistics businesses outweighed increased orders for the electrical grids, metals and public transport businesses. Current year guidance for a relatively modest 5% increase in revenue and orders is conditioned by uncertainty as to the impact of the third wave of the pandemic. Management has indicated that growth will accelerate once the vaccine campaign is successful. The targeted rebound in EBIT to over €20m (16% above the 2019 level) is indicative of the effect of risk provisions on the 2020 numbers as well as the underlying improvement in profitability stemming from ongoing software platform harmonisation. Looking beyond covid-19, prospects are very favourable. PSI continues to benefit from the growing share of German electricity generation taken by renewable energy and gas. Management also aims to increase the share of export business (2020: 36%), particularly in the electrical grids business. Meanwhile, the Production Management segment offers participation in the world's leading metals production software business as well as Internet of Things exposure through the Automotive & Industry segment. The prospect of a renewable energy boom stretching into the 2030's as well as increased internationalisation of the business prompts us to raise our long term forecasts. We now model a 10-year sales CAGR for the period 2021-2030 of 8.2% (previously: 6.1%). Meanwhile, the EBIT margin should rise beyond 10% over the next few years as operating costs fall with the completion of software platform harmonisation. We have raised the price target from €26.00 to €31.00. The recommendation remains at Add.