First Berlin Equity Research has published a research update on PSI AG (ISIN: DE000A0Z1JH9). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from EUR 37.00 to EUR 32.00.
PSI issued a profit warning on 21 July – six days ahead of the publication of its H1/23 results on 27 July. Management has reduced 2023 EBIT guidance from €25m to €5m-€7m. The €18m-20m reduction in EBIT guidance originates mainly from the underestimation of the man-hours required by the company’s Redispatch 2.0 contracts with German municipal utilities. This underestimation stemmed in large part from over 100 amendments made by the regulator to Redispatch 2.0’s configuration. The amendments caused the programming for 60 customer projects (30 of which have still to be completed) to increase threefold. Unfortunately PSI’s Redispatch 2.0 contracts have not allowed it to recoup the additional costs incurred. The capacity tied up by Redispatch 2.0 led to delays and losses in other projects. These are also included in the profit warning. The good news is that growth in demand from PSI’s customers remains robust and looks set to accelerate further. So far this year new capacity additions (by output) in both solar and onshore wind are running at ca. 50% above the 2022 level. New legislation to accelerate permitting processes suggests that growth will remain very strong for at least the remainder of this decade. The renewables boom is driving growth at the Energy Management segment and the Production Management segment continues to benefit from the positive impact of the US inflation reduction act on US metals manufacturing. The group order intake rose 12.7% in H1/23. Meanwhile, PSI has moved to renew and strengthen its management team to prevent future mishaps. A new CEO, Robert Klaffus, is set to join PSI from Siemens on
1 November and the company has announced that in the near term the management board will for the first time be expanded to three persons. PSI has strained investors‘ nerves with three profit warnings over the past year. The root of the problem has been the Redispatch 2.0 contracts. As these will be completed by end 2023, we trust management has sufficient oversight to have adequately provisioned for remaining losses and so do not expect a further profit warning this year. We maintain our Buy recommendation with a new price target of €32 (previously: €37)