LONDON (ShareCast) - Broker KBC Peel Hunt has initiated coverage of mobile software firm Psion (LSE: PON.L - news) with a positive recommendation
on expectations that a new management team and a deep restructuring will restore acceptable returns to the business.
The company, still fondly remembered by many as a pioneer of computer netbooks back in the nineties, is now exclusively a software company with a focus on mobile computing and wireless data collection.
KBC says Psion operates in a fragmented market that should see some consolidation. Following its restructuring, Psion has a number of strategic options open to it which include the roles of predator or prey, KBC believes. The broker ascribes a take-out value of 180p to Psion shares.
In the absence of a takeover bid management will look to beef up the group's operating return on sales. 'Group return on invested capital has been as low as 3.7% and net working capital equivalent to 22% of group sales,' KBC analyst Simon Strong notes.
'Psion's international competitors have generated an operating return on sales of 10-20% prior to the beginning of the current economic malaise. We believe Psion can produce a comparable return following a period of restructuring, and that management's target of 10% is wholly realistic,' Strong opined.
KBC Peel Hunt recommends buying the shares and has a target price of 135p.
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