Pin­na­cle Tech­nol­ogy Hold­ings

Finweek English Edition - - INVESTMENT - Shaun Muri­son (@shaunmurison_ ig) is a Mar­ket An­a­lyst at IG South Africa.

If one was to look for con­sis­tent com­pany growth and per­for­mance there is no bet­ter ex­am­ple than t hat of Pin­na­cle Tech­nolog y Hold­ings Limited. Di­ver­sif i ed i n na­ture, Pin­na­cle’s busi­ness in­volve­ment in­cludes man­u­fac­tur­ing, com­mu­ni­ca­tion, hard­ware, soft­ware, tech­nol­ogy, ser­vices and f inance so­lu­tions. Within the di­ver­sity of its of­fer­ing we add glob­ally recog­nis­able brands such as Mi­crosoft, Dell, Hewlet­tPackard, In­tel and I BM ( Len­ovo), which are just a few names on a now ex­haus­tive list, a num­ber of which it is now an ex­clu­sive ven­dor for here in Africa.

In the last decade, Pin­na­cle has de­liv­ered a phe­nom­e­nal all-round per­for­mance with ex­po­nen­tial growth in terms of turnover and head­line earn­ings with op­er­at­ing prof it mar­gins dou­bling in what is con­sid­ered to be a low mar­gin in­dus- try. Head­line earn­ings per share have in­creased at an aver­age rate of 29.3% over the last five years, mov­ing from 70c in 2008 to 175c in 2012, while the last two years of growth have been in the re­gion of 45% and 48%. The same times­pan has wit­nessed an aver­age re­turn on eq­uity of 40%, while turnover has more than dou­bled from R2.5bn to nearly R6bn.

A long-term chart dat­ing back to the turn of the mil­len­nium tells a rel­a­tively sim­ple story about Pin­na­cle. What we can see is a share price that ac­cel­er­ates up­wards at a re­lent­less pace, de­pict­ing a move from 10c share pric­ing ten years ago to an im­pres­sive cur­rent price level en­trenched north of R23 a share. The up­ward trend finds con­stant reaf­fir­ma­tion year on year sup­ported by strong fun­da­men­tals that give lit­tle to no ev­i­dence of re­vers­ing at this point.

The ram­pant growth el­e­vates the com­pany from its hum­ble penny-stock ori­gins into mid-cap ter­ri­tory as Pin­na­cle now boasts a mar­ket cap­i­tal­i­sa­tion that has neared R4bn. The in­crease in mar­ket cap­i­tal­i­sa­tion now re­alises i ncreased liq­uid­ity in the com­pany, al­low­ing for greater in­sti­tu­tional par­tic­i­pa­tion in the stock.

The Pin­na­cle share now trades at an at­trac­tive earn­ings mul­ti­ple, cur­rently in the vicin­ity of 12, a dis­count rel­a­tive to our mar­ket in gen­eral. There is also a mod­er­ate yield of­fer­ing of 1.5%, in terms of div­i­dend, to com­bine with the con­tin­ued po­ten­tial for cap­i­tal gains go­ing for­ward.

Pin­na­cle has de­liv­ered his­tor­i­cally on it s ad­ver­tised fo­cus to in­crease share­holder re­turns through prod­uct se­lec­tion and strate­gic value add ac­qui­si­tions. As the com­pany grows its lo­cal mar­ket share to sig­nif­i­cant pro­por­tions in its po­si­tion as a dis­trib­u­tor of lead­ing tech­no­log­i­cal brands, growth is likely to emerge from fur­ther qual­ity ac­qui­si­tions and fur­ther de­vel­op­ment in its African op­er­a­tions. Un­for­tu­nately, Pin­na­cle’s share price of­fers very lit­tle in price cor­rec­tions to af­ford an op­por­tu­nity to find en­try on weak­ness, but longterm in­vest­ing is less sen­si­tive to tim­ing a nd the po­ten­tial for 15%-20% yearly r et u r ns go­ing f or­ward is an at­trac­tive of­fer­ing.

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