Pinnacle stocks drop

Pinnacle Holdings stock took a hammering on Friday after the group said it would suspend dividends in a bid to preserve free cash.

The share price lost 10.65%, or 143c, to close the day at R12, shedding the gains it made towards the end of last month it made after telling the market that charges against its executive Takalani Tshivhase were dropped because of a lack of evidence. Tshivhase had been charged with attempting to bribe a senior police official to win a deal.

On Friday, the company said the year to June "would have to rank as one of the most challenging in the 21-year history of the company," and noted the bribery allegations were the "the single most significant issue". Pinnacle, which is "presently considering its legal position with regard to the matter", notes the allegations led to a sharp drop in its share price.

News of the charge, released on 25 March, sent Pinnacle's shares into freefall, as they lost 25% on the day from the opening price of R20. On 26 March, its stock continued to slide, losing another 23.67%, to close at R11.45, dropping its market capitalisation to under R2 billion.

Financially, Pinnacle also had a challenging time, as gross profit dropped a percentage as margins declined, despite an 8% increase in revenue to R7.1 billion. It notes it has discounted some inventory that was slow moving and would have become obsolete, and also concluded some large deals at lower margins.

This comes after it moved, earlier this month, to assure shareholders it remains focused on day-to-day business operations, and says customers, suppliers and financiers "remain in place and continue to be supportive of the business".

Pinnacle saw a "substantial weakening in its share price" after an 8 August trading statement that warned its results for the year ended 30 June would reflect a headline earnings per share drop of 15% to 22%, and earnings per share decline of between 13% and 20%.

In its results, Pinnacle says operating expenses increased 15%, which led to earnings before interest, tax, depreciation and amortisation dropping 18% to R405.6 million. Some of the increase in operating expenses included non cash items, it adds.

The group, which has long-term loans of R28.8 million and cash of R25 million, declared a net profit of R252.6 million, which translates into headline earnings per share of 166.5c, a 19% decline.

Pinnacle adds it usually declares a dividend of 20% of headline earnings per share, but has decided to suspend this policy after "careful consideration" so it can "preserve its cash resources to ensure that gearing reduces to more acceptable levels and that it invests into growth areas of the business".

The listed company says the overall economy faces challenging times ahead, with consumers becoming more financially constrained than ever before and the manufacturing and resources sector "bedevilled by labour and demand issues".

Despite this, the IT sector has remained relatively resilient, and Pinacle expects this to continue to be the case. It adds it is "rigorously pursuing all commercial opportunities to take advantage of our efficient infrastructure and broad offerings in our distribution cluster".