PSZ

About the author:

Author name:

By Nick Harris

Job title:

Senior Analyst

Date posted:

14 January 2014, 9:44 AM

Sectors Covered:

Telecommunications, Technology

We are initiating coverage of People, Security and Communications (PSZ) - a diversified Information Communications and Technology company. Key attractions include a top tier client base, a long track record of profitability and an experienced management team. 

We expect the group to deliver healthy organic growth as the business units benefit from each others client relationships. This should allow revenue and margins to expand through a combination of centralised administrative functions leading to higher staff utilisation and through improved customer demand.

Investment highlights

1. Attractive fundamentals (PE of 8.8x, gross dividend yield of 8.5% and a 17% ROIC for FY15;
2. Management with a strong track record, significant equity ownership, and aligned with shareholder interest;
3. Impressive blue chip client base with geographic diversity;
4. Relatively defensive business model; and
5. The security division (~25% of EBIT) is unique and well positioned for growth given increasing awareness of cyber security issues.

Investment risks

1. Loss of key customers and/or technical staff remains the largest risk, although we believe this is mitigated via vendor scrip and earn-outs;
2. Vendor earn-outs can be either cash, scrip or a combination. We assume they are cash/debt funded but if they are 100% scrip based, NPAT growth needs to exceed 15% to deliver EPS growth; and
3. PSZ's limited liquidity and track record as an ASX company.

Investment view

We initiate with an Add recommendation and A$1.24 share price target. We set our price target at a 10% discount to our A$1.38 valuation to reflect PSZ's limited history and will reduce this discount with time.

More information

If you are interested in finding out more about People, Security and Communications (PSZ), please contact your nearest Morgans office.

Disclaimer(s): Morgans Limited acted as the co-manager for the Initial Public Offering of PS&C Limited and received fees in this regard.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.