First Berlin Equity Research has published a research update on PSI SE (ISIN: DE000A0Z1JH9). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from EUR 32.00 to EUR 30.00.
PSI’s order intake climbed 25.5% to €69m (Q3/22: €55m) in Q3/23 and was up 16.1% at €238m (9M/22: €205m) after nine months. Order intake growth was driven by the Energy Management segment – in particular the electricity network business. Group Q3/23 sales rose 3.1% to €65.2m (Q3/22: €63.2m; FBe: €70.5m) while EBIT came in at €2.7m (Q3/22: €6.1m; FBe: €3.0m). In Q2/23 PSI reported an EBIT loss of €9.4m as it issued a profit warning in connection with the underestimation of man-hours required by the Energy Management’s Redispatch 2.0 contracts. The Q3/23 EBIT margin at Energy Management remained low at 2.2% due to poor profitability of projects taken on in 2021 and 2022 but improved slightly on the prior year quarter’s 0.2%. The y-o-y narrowing of the group Q3/23 EBIT margin to 4.1% (Q3/22: 9.7%) was attributable to the Production Management segment. The segment’s Q3/22 figures included high license income from PSI Metals. Q3/23 license income at PSI Metals was down y-o-y but is expected to pick up strongly in the current quarter. Production Management’s Q3/22 numbers were also helped by grant income. There was no income from this source in Q3/23. Management is sticking to full-year guidance of €5m-€7m in EBIT and a 10% rise in sales and the order intake despite the fact that after nine months sales were up only 2.7% and EBIT was €-2.7m. We think full-year guidance is achievable because the negative impact of the Redispatch 2.0 projects will lessen in the current quarter, the Production Management segment will receive grant income and PSI Metals is set to book substantial licence income. We maintain our Buy recommendation but have lowered the price target from €32.0 to €30.0. The reduction in the price target is based on: 1) an increase in our WACC estimate from 8.6% to 8.9% to reflect the increase in the yield of the ten-year German government bond yield from 2.54% at the time of our most recent note of 3 August to 2.83% currently; and 2) a reduction in our 2024 EBIT margin estimate for the Energy Management segment from 5.0% to 4.0%. We continue to expect the segment to cross the 10% EBIT margin threshold by 2028.