Pinnacle bullish on increasing revenue

By Nicola Mawson, Contributing journalist

Johannesburg, 26 Feb 2007

Diversified technology investment holding company Pinnacle Technology Holdings is bullish on increased sales over the next year as government increases IT spending, its penetration into the retail sector grows and higher margin businesses see traction.

The company on Friday reported its interim financial results to end-December and said turnover was up 87%, to R729 million from R390 million a year ago, while net profit moved to R33 million, from R16.8 million.

The company's margins have grown from 4% in 2002 to 7.4% in its latest results. CEO Arnold Fourie says the company aims to maintain this level. However, its gross profit margin has moved down slightly, from 15.8% at its last year-end to 15.6% in the current period.

Fourie explains the consolidation of Workgroup, with the Namibian business being moved into Pinnacle Africa, led to this loss. However, he is confident the company can "work it back up".

Several initiatives are under way to return the margin to previous levels, including exploiting synergies, improving Pinnacle Micro's gross profit margin, growing RentNet and taking advantage of higher margin opportunities through Datanet.

Pinnacle also aims to exploit synergies within the group. Fourie says any "gaps" within the organisation that cannot be filled through organic growth may be filled through acquisitive growth.

Gaining traction

Fourie says the hardware division, Pinnacle Micro, has targeted the mass retail chains for about a year. He says it is starting to gain some ground in this market.

Pinnacle Mirco is following a proactive approach in targeting government departments and corporate entities. Fourie says finance minister Trevor Manual's recent budget speech is positive for the industry as it bodes well for future ICT sales into government.

The company aims to take advantage of its 29.4% black economic empowerment stake and pick up additional public sector contracts. "That's going to be great for us."

While its share of the desktop segment of the market grew from 4.3% a year ago, to 7.9% in its latest results, the company has been losing ground in the laptop segment due to an aggressive market and "price war". To counter this, Pinnacle signed up LG, resulting in a 150% increase in market share.

Fourie anticipates the joint venture between MB Technologies and global IT distributor Ingram Micro, which is effective from 1 June, will yield positive spin-offs, as it will slow down some of the company's competition. He says the company has always been a tier two supplier, an area the new venture will only target later, but Pinnacle's diversity will "protect" the company.

Growth prospects

Its latest addition, a 50.1% stake in networking company Datanet, will require work to improve its bottom line. Fourie is bullish on its prospects, especially in fibre optic technology. He says the three- to four-year plan is to turn the company around, make it more profitable, and then Pinnacle may buy out the remainder of the stake, held by Datanet's management.

Datanet did not add anything to the company's financial results for this period, but it will be included in Pinnacle's results for the year in June and will make larger contributions from 2008.

RentNet, its audio and video rental division, is expanding the range of equipment it holds for rental to attract additional sales. Pinteq, its technical services and support division, has been separated from Pinnacle Micro, where it was previously housed, and Fourie says the company will "start exposing" it this year.

The introduction of Vista - Microsoft's latest operating platform - is expected to boost sales among corporate clients between the middle of this year and the end of 2008.

The company's shares closed at R4.03 on Friday, up from Thursday's close of R3.95. Its 12-month high is R4.06, while its 12-month low is R1.75.