PINE-ing for a working system
Schadenfreude in the world of Car Dealer Management Systems
Dear reader,
A big shout out to eagle-eyed reader John R who spotted that a massive cyberattack struck car dealers this week. Not just car dealers, it was specifically their dealer management software - CDK. The very software Lithia uses. Lithia are Pinewood’s part owner and JV partner for US Dealer Management System sales.
Lithia’s current main DMS provider in the US (CDK) had a major outage yesterday and Bloomberg reports that "15,000 car dealers were ground to a halt"
CDK Global was hit by a cyber attack, with thousands of dealers affected and the majority of OEMs on its books.
CDK commented:
“Late in the evening of June 19, we experienced an additional cyber incident and proactively shut down most of our systems. In partnership with third party experts, we are assessing the impact and providing regular updates to our customers.”
Yesterday the company said its core dealer management system and digital retailing solutions had been restored. It said it also had tested and consulted with external third-party experts after the incident.
Ouch!
Not ouch and perfect timing for its competitor Pinewood though. Were they singing SchadenFreude perhaps?
Pinewood’s Pinnacle system is replacing CDK at its JV partner Lithia, who also acquired the UK Pendragon business too, making Pinewood a SAASy software seller, and removed a massive conflict of interest where Pendragon’s competitors didn’t touch Pinewood because it was owned by a competitor - despite being arguably the best platform in the market.
Pinewood is also ISO27001 and ISO9001 accredited and is also an accredited Microsoft Gold Partner for multiple competencies – the highest level of achievement, which can only be attained with a strong foundation of experience and a commitment to embracing new technologies, employee certifications, customer references, satisfaction surveys and system tests.
Of course potentially anyone can have dirty laundry and eagle-eyed readers might point out that back in 2022 Pendragon itself was subject to a £53m ransom attack. Yes, that’s true, but Pinewood’s DMS was completely unaffected and uncompromised by this attack - it was the Corporate systems which were affected.
The opportunity
Now we are post 24.5p special dividend and a 1-for-20 share consolidation has occurred, the idea is up from 32.2p minus a 23.5p special dividend is a net 7.5p consolidating to a net cost of £1.50/share in my Oak Bloke 19 for 2024. Pinewood has more than doubled to £3.73 today. A very tasty 148% rise or £2.23 per share return, including special divi.
Have you missed the boat if you didn’t follow the idea?
Today you are paying £326m market cap, for a SAAS business called Pinewood Technology with 2022 £25.3m Recurring Revenue and £11m EBITDA and up 26% at £32m revenue and £15.6m adj. EBITDA and PBT £9.9m in 2023.
So 32.6X earnings sounds a lot.
But 32k users today and 48k users by FY27, much of which is nailed on through an existing pipeline. Not least is the implementation to Lithia’s US sites and 50 UK sites and also other international expansion, such as Porsche in Japan.
Pinewood confirmed that the North American joint venture will begin testing in pilot locations in the US Lithia sites in H1 FY25. Will this week’s outage see that accelerated? It is in Lithia’s interest to grow its JV faster - this even may spur that along. It is a 16.6% shareholder in Pinewood too.
If PINE can achieve a 1% penetration to its total addressable market that equates to a £90m+ recurring revenue. Applying a 58% gross margin, long term overhead/depreciation/amortisation of £8m and tax at 25% drives a net profit £35-£40m+.
That shrinks the P/E to 8-9.
Comparing PINE with peers such as Sage/GB Group/Aveva a 25X PE multiple is reasonable. That puts Pinewood on an up to £1bn market cap. So that’s still 3X what you can buy it for today.
….and that’s with a 1% global penetration.
BMW’s story of mandating Pinewood for its dealers first for the UK and then for Northern Europe offers a different and further intriguing route to market. BMW cars have a 7.2% global market share. If…. (this is just my illustration reader, no announcement has been made by BMW to do this) … if BMW decided to roll out Pinewood’s DMS globally the P/E drops to 1.1X
Regards
The Oak Bloke
Disclaimers:
This is not advice
Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip".