SHORT TERM UPSIDE

PWR, SHORT TERM UPSIDE?
On the first trading day of FY03, the absence of ING and retail tax sellers will dramatically remove the pressure on PWR?s share price. Most day traders have wisely kept clear of PWR in recent months. Expect the traders to back in full force in early FY03. No ING + no tax selling + day traders = a sharp rise for PWR?s share price in early FY03.

PWR, medium term upside: The thing to keep in mind re the medium term is that CBA didn?t follow ING in bailing out. They are sitting on the sidelines giving chief executive Theo Baker?s new business plan a chance to succeed. As I see it, two things are required for CBA to lift their holdings in PWR. First, PWR has to get back into the S&P ASX200. This will probably happen, if PWR?s market cap climbs above $130million (roughly equivalent to a 24c share price following the CLA acquisition). Without the ING overhang, PWR could easily reach 24c in the first week of FY03 (keep in mind that about 70% of the total volume PWR shares sold over the last month have been due to ING. The ?market? hasn?t really been selling PWR; ING has been selling PWR. Look at the market depth. The market is waiting to buy PWR). (If you want to know how I worked out the 70% figure, see the 15page Pdf. File attached to ING?s ?no longer a substantial shareholder? notice). The second point is that CBA, as well as any other instos waiting in the wings (CSFB?), will be looking for Baker?s restructuring of the company to be completed as well as some indication of positive earnings momentum. We probably won?t get any firm guidance about this until the full year profit results are released in early September. In the absence of bad news, I?d expect PWR?s price to steadily rise to about 39c by early September. (39c=P/E15 by 2.6 full year eps ? conservative) Where it goes from there, obviously, will depend on the company?s profit outlook and the outlook for the software sector as a whole.
Keep in mind that PWR?s proprietary software and managed service businesses grew by 26.2% in the first half of FY01/02, and Baker has repeatedly flagged strong growth in this area for FY03. Indeed, for the first half of FY02, this side of business contributed just 24% of revenue, yet it contributed a whopping 73% of net profit. Little wonder that Baker wants to focus exclusively on the this side of the business, and little wonder the instos want this to happen also.