Pinewood cinches it!
Major win for PINE - 5 year contract with Marshall Motor Group
Dear reader,
Oak Bloke Idea for 2024 Pinewood Technologies Group PLC announces a major new Contract Award
Pinewood secures a contract with Marshall Motor Group.
Pinewood Technologies Group PLC, a car dealer software SaaS business announced a 5 year contract with the Marshall Motor Group to implement Pinewood systems into their stores.
Marshalls is one of the leading automotive retailers in the United Kingdom with circa 120 dealerships and is part of the Constellation Automotive Group, which also includes Cinch, BCA and webuyanycar (dot com).
If we assume Lithia to be representative of Marshalls then 120 dealerships equates to around 6,750 users which is a 20% growth of footprint to that in the 1H24 results (34,300 users).
The market reaction was 14%. Was that a fair reaction? I believe it undercooks the news.
Certainly the contract represents the first non-associated major dealership group in the UK to adopt the Pinewood product suite following the recent successful implementation into the Lithia Motors' UK businesses (formerly Jardine Motor Group and Pendragon).
The difference is Lithia part owns PINE so this is the first major validation to the strategy that said Pinewood would have much more success selling into the UK once it had de-coupled from its car dealer ex-parent Pendragon (Marshall’s competitor)
The bit which really excited me is this from the CEO Bill Berman:
“We now supply our software to four of the top-20 UK dealer groups and are confident in our pipeline of new customers in the months ahead."
He went on to say:
"Today's announcement follows the ongoing rollout programme of our system to the UK dealerships of Lithia Motors, our strategic partner, which is progressing well and I am pleased with the progress we are making in this market.
"Entering into a contract with a company like Marshalls, one of the largest franchised dealer groups in the UK, is an extremely strong validation of the Pinewood product suite and it underlines our position as one of the leading automotive retail ecosystem providers in the market.
Avril Palmer-Baunack, Executive Chairman of Constellation Automotive Group, said: "We are excited to be embarking on this new partnership with Pinewood over the coming months. This partnership will allow us to integrate and upgrade our systems whilst enhancing and accelerating our continuing strive to deliver market leading customer service to our consumer and business partners."
This success comes on the back of a busy 2024 rolling out Pinewood across Lithia which is nearing completion.
Profit Model
My profit model shows actuals in the right hand three columns with forecast values to the left.
I’ve asumed a price rise of 3% for next January and 5% in Jan 2026 which shows in the Per User Per Month (PUPM). I’ve factored in only the Lithia (2000) and Marshalls (1200) users in the current period to Jan 25. I make an assumption of growth net of churn to be 4% in the current period and then a 10% rate is achieved next year (to Jan 2026).
I’ve assumed a stready 82% of recurring to allow for 18% of Professional Services and one-offs. There’s not really any assumption made for additional features and modules although it is potentially the case that these will begin to exist. The recent AI acquisition being an example of this.
Even though GM% has been rising I’ve made no assumption of an increase and notice in the current period PINE speak to “heavy investment” in the product. Well I’m making the assumption that investment continues so the “Overhead” number assumes further acquisitions of capabilities and build out of the product. I’m not making any assumption to capitalise that IP just writing to the P&L.
We see strong growth in profit and a run rate no faster than the current pace of sales and growth. Foward profit in 15 months time implies a 33% upside to the share price.
What if this can growth 20% not 10%? Profits ratchet by over 25% to £20m PAT. Forward profit in 15 months time implies a 66% upside to the current share price.
Could it grow even faster? My eye is drawn back to the statement “we are confident in our pipeline of new customers”. There’s still 80% of the top-20…. just in the UK. There’s a whole world out there too.
The car dealer is an incestuous market. How long until people move jobs and clamour… and pine… for Pinewood?
What if it’s not an employee - but a car manufacturer?
I was fascinated to read that BMW had mandated Pinewood for its dealers first for the UK and then for Northern Europe - and this offers a 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 globally then the business grows several fold for that contract alone.
Thinking about additional modules, what about acquisitions? Seez offers an extension to Dealer Management to include customers.
Include customers? What do you mean Oak Bloke?
Start with a QR code and the system extends to an ecommerce “check out” complete with trade in tools, a chatbot, whatsapp, finance integration, integration with the Pinewood DMS, digital signature and documents.
A chatbot that can deal with questions without needing a human.
Marketing Management that handles referrals, ad management, automated email follow ups and templates.
For anyone who has watched the slick adverts and then faced large wodges of paperwork at the dealer, this introduces a slick customer experience for customers and not just a slick system for car dealers.
A synergistic partnership and investment for PINE which puts in further ahead of rivals.
Regards
The Oak Bloke
Disclaimers:
This is not advice - make your own investment decisions.
Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip"