Following disappointing Q1 sales and the subsequent conference call, we have revised downwards our restated FY16-18e EPS sequence by 3.5% on average. Gemalto reiterated its “vague” FY16 guidance (+1.5% gross margin, accelerating its PFO expansion towards its 2017 objectives). The current year will be especially back-end loaded (Softcard loss during Q2 last year) and there are still too many risks in SIM & related businesses, such that the 2017 PFO target of over EUR660m is out of reach (it implies at least a +25% CAGR 2015-17e vs. +10.4% in 2015). We expect momentum to be unattractive as long as management maintains its 2017 PFO target. We are now more than 12% below this target (vs. 9% below before). We maintain our Neutral recommendation and have cut our FV from EUR69 to EUR62 (average of an SOTP, a DCF and historical multiples).
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