Financial Mail - Investors Monthly - - Opening Bell - IM Marc Hasenfuss

Share price: R16.25 JSE code:

SELL FUN­DA­MEN­TALLY, PIN­NA­CLE — AT FACE value — should rank as a “buy”. The busi­ness trades on a 7.94 times earn­ings mul­ti­ple, which is a dis­mis­sive rat­ing con­sid­er­ing the profit track record of the com­pany over the longer term. The high­lights of Pin­na­cle’s most re­cent set of re­sults are im­pres­sive: rev­enue up 37% to R10.9bn, core earn­ings up 12% to 205c/share, cash gen­er­ated up 47% to R748m, and the gear­ing ratch­eted down to just 19%.

The hitch is that jit­tery mar­ket sen­ti­ment is over­shad­ow­ing what ap­pear to be de­cent op­er­a­tional fun­da­men­tals. Last month Pin­na­cle ad­vised share­hold­ers that charges had been brought against a cus­tomer of one of the com­pany’s key sub­sidiaries. The sub­sidiary was men­tioned in the charg­ing and court ap­pear­ance of the de­fence force’s bri­gadier-gen­eral Leon Eg­gers. He is ac­cused of favour­ing Pin­na­cle Africa (and another sup­plier) in the award­ing of busi­ness by us­ing his po­si­tion to ob­tain pri­vate gifts or ben­e­fits from the com­pa­nies.

Pin­na­cle dis­missed the al­le­ga­tions, but the mar­ket’s im­me­di­ate ver­dict was bru­tal in bat­ter­ing the com­pany’s share price.

The Eg­gers mat­ter is likely to sub­due en­thu­si­asm for Pin­na­cle, de­spite its bar­gain-base­ment share price, un­til there is more clar­ity on le­gal pro­ceed­ings. Brave in­vestors may well be re­warded in the longer term, but would pre­fer to keep its dis­tance at this del­i­cate junc­ture.

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