Fabrice Taylor comments on PTG:
Cantor Fitzgerald recently initiated coverage on Pivot Technology Solutions, Inc. (PTG.V) with a “buy” rating and a target of $1.25, which is about a 130-per-cent increase from where it’s now trading. Pivot, founded by former Apple CEO and Pepsi president John Sculley, is what’s called a value-added reseller (VAR) of technological hardware such as servers and storage devices. In his March 25 initiation report, analyst Ralph Garcea, said he believes Pivot has the scale and capital-raising ability to compete in the sector. “Pivot is uniquely positioned amongst U.S. VARs to respond to the numerous dynamics affecting the IT supply chain, including consolidation in end user markets, evolution in mobile, big data and enterprise computing, and the advent of the post-PC era.” Pivot is set to introduce a dividend of 3 cents per year in late August, with payment in September (a little less than 6 per cent at today’s price). He sees the market cap expanding to $150 million by the end of the summer (from about $90 million today). Mr. Garcea says another Pivot advantage is that it doesn’t sell consumer-grade hardware and shrink wrapped software – products that have become commodities with thin profit margins. Even despite this Pivot’s margins are quite low, with gross margins at a little better than 10% in the latest quarter. Mr. Garcea’s estimates (as of March 25) show Pivot trading at C2016 EV/Sales of 0.1 times and EV/EBITDA of 4.2 times. That is compared to its VAR comparables at an average of 0.3 times and 6.6 times, respectively. (The stock has narrowed the gap considerably since them.) The analyst said Pivot has plenty of cash flow to support the dividend and a normal course issuer bid (NCIB or share buyback). “With very little capex required in the business (about $2-3 million per year), and the last contingency payments done by October 2015, we believe PTG has sufficient cash flow to grow the dividend over time and execute on the NCIB.” On May 29, Pivot reported first-quarter revenues of $296.4 million, down 7.2 per cent compared to same time last year. It cited lower product sales related to softer market conditions and an “atypically strong comparable in Q1 2014.”