Psion looks organised

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The mistake most people make about Psion is to focus on its current product portfolio and think that the company is simply a hardware manufacturer, albeit of a successful fast-growing product, the Series 3A palmtop organiser.

It is actually a highly skilled writer of software, better placed than anyone to capitalise on the rapid convergence of telecommunications and computing, thanks to its ability to compress powerful applications into pocket-size boxes. That is where the value of the company lies - not in what it does, but what it might do in five years time.

It is no surprise that mobile phone giants such as Nokia and Ericsson are sniffing around the company. The marriage of their products and Psion's software is the future of consumer electronics and, having learnt from Apple's mistakes and expressed its willingness to license out its operating system to others, Psion has paved the way for potentially extremely lucrative joint ventures with the industry's giants.

In the meantime, profits from the organisers and their industrial spin- offs continue to flow, with pre-exceptional profits up 56 per cent to pounds 8m (pounds 5.1m) on a 35 per cent rise in sales to pounds 53.7m in the six months to June. With a pre-tax return on sales of 15 per cent, gross margins of 41 per cent, a return on equity of 70 per cent and a pounds 12m cash pile, the company is in fine fettle.

There are some worries. Progress in the US was a disappointment with profits up only about 13 per cent from a low base, compared with internal projections of nearer 50 per cent. And the collapse of the Amstrad talks has cast doubts over strategy. But these should not distract from the big picture.

Psion's share price has been a massive outperformer since the market cottoned on to the potential at the end of 1992 and it would take a determined optimist to see much short-term value in the shares at yesterday's close of 400p, up 9p. On forecast profits of pounds 16m this year, the shares trade on a prospective price/earnings ratio of 27.

Historically, however, looking at Psion in the short term has been the market's, and our, mistake. This is a bet on the future and on Psion's ability to capitalise on it. Earnings ratios rarely make a jot of difference in those circumstances.