Companies: PON   

Weak North American demand is damaging mobile computing counter Psion, the provider of solutions including software, rugged hardware and secure wireless networks.

In a December 2007 trading update that wiped 15% from the share price, Psion said sales from Europe, the Middle East and Africa were growing satisfactorily and sales from Asia strongly, which is encouraging as two thirds of overall sales emanate from these combined regions. However, demand in the Americas continues to slow, in particular from the transport and logistics sectors. And although several delayed large North American contracts have subsequently been signed in the second half, buying decisions are being delayed as the credit crunch-inspired economic crisis across the Pond grows.

As a result, Psion’s annual US dollar sales will be 8% south of last year’s $135m (£65.5m). On translation, investors are looking at a 15% regional revenue reversal, implying very modest sterling sales growth on last year’s £191m. Subsequently, analysts have cut 2007 sales forecasts from £201m to £193m, pegging back pre-tax estimates by 30% to £10.3m and forecast earnings from 6.8p to 5p.

Despite weak US trading, costs are said to be under control, new products, such as the Ikon rugged PDA, have been well received and recent acquisitions give cause for encouragement.

Nevertheless, although Psion trades on a modest price-to-sales ratio of 0.75 times, downgraded earnings forecasts place the shares on a pricey forward multiple of 21 times even after the share price correction. Bearing in mind the old adage about buses arriving in threes, the risk profile has increased. Sell.

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