- Bumper special dividend on way
- High gross margins and recurring revenues
- Huge growth potential in US
Car seller-turned-software-as-a-service firm Pinewood Technologies (PINE) has confirmed its plan to reward shareholders with a bumper capital return following the recent sale of its lower margin UK motor and leasing business to North American dealerships group Lithia (LAD:NYSE).
As pledged last year, Pinewood will return £358 million to shareholders, more than half the current market cap, through a special dividend of 24.5p.
Shares in Pinewood, formerly Pendragon, have motored 140% higher over the past year after a bidding war for Pendragon ended with Lithia hiking its initial £280 million offer for the motor and leasing operations to £397 million to seal the deal.
This is why today’s price action was muted, with Pinewood Technologies nudging 0.2% higher to 39p on the news.
A general meeting on 22 April will include a motion to approve the special dividend, set to be paid on 7 May and accompanied by a share capital consolidation.
NEW CHAPTER BEGINS
The disposal of the motor and leasing unit to Lithia saw the group officially morph from car dealer Pendragon to Pinewood, a cloud-based dealer management software solutions provider to the automotive industry.
The radically transformed group is now a pure-play software-as-a-service business with gross margins approaching 90%, high recurring revenues and much-improved growth prospects on a global scale.
US OPPORTUNITY EXCITES
Lithia holds a 20% stake in Pinewood, and a joint venture has been created, of which Pinewood owns 49%, to enable the company to access the exciting opportunity in the US, home to an estimated 18,000 car dealers with a total market opportunity thought to be worth £2.6 billion.
Through its Jardine Motors brand, Lithia UK has 2,500 users that it plans to migrate to Pinewood. ‘That will underpin growth in the UK,’ says Berenberg. ‘We think that the standalone entity is attractive to UK dealers as its association with Pendragon is removed and it is seen as independent.’
With a 41p price target for Pinewood, Berenberg points out that following payment of the dividend, the company will have roughly £15 million of net cash in the coffers and no debt.
This means management, led by CEO Bill Berman, could ‘supplement the organic growth story with targeted acquisitions in certain geographies’.
