Fuel Systems Solutions (FSYS) update

Difficult one this..
Quartlery figures were better than expected. Take the $1.12 in Q4 net profits (versus 98 cents expected), but their key market (Italy) might slow after they abolish subsidies. We tend to argue that, after a near 50% fall in the stockprice in the last two months, this is already largely factored in. There are plenty of growth opportunities elsewhere, Italy is less than half the story and the first quarter will still maintain the momentum there as well. The fall is overdone.

UPDATE 3-Fuel Systems sees demand slowing in Italy, shares fall
Thu Mar 4, 2010 2:36pm EST

* Q4 EPS $1.12 vs est $0.98

* Revenue jumps 94 pct

* Shares fall as much as 8 pct (Recasts; Adds analyst comments, updates share movement)

March 4 (Reuters) – Fuel Systems Solutions Inc (FSYS.O) warned that its key market, Italy, was unlikely to repeat last year’s strong performance after the country’s government decided to end subsidies for alternative fuel systems, sending its shares down as much as 8 percent.

Shares of the company were trading down $1.19 at $27.09 Thursday afternoon on Nasdaq. They had risen 6 percent earlier in the day after the maker of alternative fuel components reported better-than-expected quarterly results on strength in the Italian market.

In November, the company said it expected Italy to contribute nearly half of its revenue in 2009. [ID:nBNG73270]

Fuel Systems’ components and systems control the pressure and flow of gaseous alternative fuels, such as propane and natural gas, used in internal combustion engines.

Things will be getting weaker during the course of the year as margins fall, which also implies lower profitability, analyst Theodor Kundtz of Needham & Co said.

Fuel Systems is targeting 2010 gross margin of 28 percent and 30 percent. It forecast 2010 revenue of $400 million to $450 million. Analysts on average were expecting $443.9 million, according to Thomson Reuters I/B/E/S.

The outlook includes an expectation of about 130,000 to 140,000 delayed OEM installations, the company said.

It expects first-quarter revenue to be consistent with quarterly levels in the second half of 2009, given continued momentum from bi-fuel vehicle orders placed prior to the expiration of subsidies in Italy, the company said.

The market was expecting the Italian government’s subsidies for alternative fuel systems to continue in 2010, but the government there recently announced that it would focus incentives to boost consumer demand on industry sectors other than cars. [ID:nSGE6190M9]

The first-quarter outlook is not reflective of current business conditions, and there are concerns about the rest of the year, analyst Shawn Severson of ThinkEquity LLC said.

The analyst said comparisons will get tougher as the year progresses, despite the company’s expectations that demand for new bi-fuel vehicles in Italy will be healthy in 2010.

For the fourth quarter, Fuel Systems reported net income of $19.9 million, or $1.12 a share, compared with $641,000, or 4 cents a share, a year ago.

Revenue for the company jumped 94 percent to $163.7 million, driven by growth in delayed OEM installations in the Italian market.

Analysts on average were expecting earnings of 98 cents a share, on revenue of $158.7 million. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Anne Pallivathuckal)