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.