PiroNet AG – Kaufen
Die Sal.Oppenheim-Analysten raten zum Kauf der PiroNet-Aktien.
Strong quarter but punishment for being imprecise
* Very strong results in Q3 2000 allowed the company to exceed our previous planning for license revenue growth for the year. Margins have improved and will continue to go up as revenues grow and proportion of license sales increases.
* Lack of communication skills with financial community continues to damage the company’s standing in the stock market and has been reflected in the unjustifiably low current stock valuation for PiroNet.
* We believe in the company’s ability to meet our estimates for the year and to continue to progress in the market for content management software. We maintain our buy rating for the stock.
Continuing the trend of the previous quarters, PiroNet results showed strong revenues growth (+148% y-o-y) in Q3 2000. Especially encouraging was the growth in license revenues (+168% y-o-y). As a result, the proportion of software revenues increased from 18.2% in Q2 2000 to 25.5% in Q3. For the first nine months, licenses accumulated to almost 22% of total revenues. Such an increase in license revenue proportion had a positive impact on margins (see figure below). Gross margin improved from 35% in Q2 to 58% in Q3 (for nine months gross margin was 45.8%).
The EBIT margin also improved from –32% in Q2 to –12% in Q3, including an estimated DM120,000 charge in Q3 related to acquisition of NDH. The company almost reached break even in Q3 with EPS of € -0.01. As a rule, sales of software increase in the last quarter of a calendar year. Based on better than expected development of license revenues, we adjust our forecast as follows. We increase the license revenues from DM4.5m to DM5.1m or about 22% of total revenues for the year. Based on revenue development in the first nine months, we slightly reduce our expectations for service revenues, which is a rather conservative assumption. As a result, total revenues increase marginally from DM34.4m to DM34.5m for 2000.
The proportional increase of high-margin license revenues will have a positive impact on margins. We therefore expect further improvement of margins in Q4 to 59% (gross) and to –9% (EBIT). For the year, we expect a gross margin of 50% and EBIT margin of –18.2%. We want to stress that our forecast refers to PiroNet alone and reflects organic growth of the company only. Consolidated with NDH, revenues should reach DM48m for 2000 (9-month revenues: DM35m). We believe the outlook for PiroNet is good. The company has been able to accelerate its product revenue growth and win the first internationally present customer (Basell Polyolefins). The next strategic goal is toestablish an indirect distribution channel that would enable increased market penetration and reach more potential customers within Germany and abroad.
Operations aside, the company has to solve the issue of contact with the financial community. As we have previously mentioned, the company so far lacks the ability to communicate its own successes to the rest of the world. It is really unfortunate that the strong operating performance has not received the proper attention of the stock market, resulting in the low valuation of PiroNet’s shares. Currently, PiroNet seems to be heavily undervalued based on both a growth-duration model and peer-group comparison (see summary forecasts below).
The per-share values in the market cap/sales peer-group comparison are based on the consolidated PiroNet–NDH estimates and increased number of shares (14.6 million as opposed to 11.48 million on a stand-alone basis). PER valuation results in a much higher value of € 53 per share, but is based on fewer estimates available for 2001.
In 2000, PiroNet has made rapid progress in the market. We will have an in-depth meeting with management in a few weeks to talk about the strategic outlook for the coming year. We maintain our buy rating for the stock
