Pinnacle bounces back after bribery case folds

PINNACLE director Takalani Tshivhase returned to his office in Midrand this week after charges of bribery against him were dropped.

PINNACLE director Takalani Tshivhase returned to his office in Midrand this week after charges of bribery against him were dropped.

Pinnacle's share price vaulted 43% at once to R14.15/ share, but industry sources say that didn't remove the cloud hanging over the technology company. Perhaps that was why, despite the apparent reprieve, the stock then fell 4.6%.

According to the National Prosecuting Authority's specialised commercial crimes unit, there was "insufficient" evidence to successfully prosecute Tshivhase, who was accused of offering a police general a R5-million bribe to secure a R162.6-million contract.

Vunani Private Clients head of trading Gary Booysen said the dropping of charges did not necessarily mean there was no wrongdoing at Pinnacle.

For one thing, Pinnacle was being investigated by the Financial Services Board's insider trading directorate in connection with the sale by founder Arnold Fourie and other directors, including Tshivhase, of shares in the company after the arrest, but before the news was communicated to the market.

Fourie and Tshivhase did not respond to inquiries this week.

Booysen said the market continued to discount Pinnacle's stock based on uncertainty about the transparency of the company's dealings.

Pinnacle's stock is still well shy of the R20/share it was trading at in March before news of the arrest leaked out. T he stock fell to R7.62 earlier this month, when the company warned that its earnings for the year to June would fall 15% to 22%.

"The surprising trading update has also impacted the ability of the share to recover to its old level," said Booysen.

Over the past five years, Pinnacle has been a consistent winner as the share price soared 509%. While the bribery issue took the gloss off, the fall in the share price makes the stock cheap. It is trading on a price-to-earnings ratio of about 6.6 - far less than the JSE average of 17.

Jean Pierre Verster, an analyst at 36ONE Asset Management, said he wasn't sure whether Pinnacle's share price could be considered cheap or not at its current value (it was trading at around R13.50 on Friday), but he did think it was cheap at R10.

Others are less cautious.

Eyal Shevel of Global Credit Ratings (GCR) said that for as long as there was nothing else lurking in the closet Pinnacle could recover.

"The group has a strong track record and has built up a business with a range of products and services that is not easy to replicate," he said.

Pinnacle's credit rating at GCR remained BB+, which indicates a relatively high credit quality.

Shevel said the company's rating was placed on "rating watch" pending the outcome of the criminal case, and it would be reviewed after annual results.

Imara SP Reid analyst Danilo Pagani said Pinnacle's client base would not have been overly concerned by the charges, but if the case had gone the distance it may have strained its relationship with the government. Government tenders account for about 20% of business.

In its August trading update, Pinnacle said "there has not been any significant diminution in public sector business", and it remained "business as usual".

Imara said investors should buy Pinnacle's stock while it sat at less than R17/share.