Founded as Prescient Business Technology, renamed PBT Group, then listed in the identical group as its sister monetary firm earlier than separating by means of the sale of the monetary providers arm – leaving it with simply the one itemizing on the JSE – PBT Group (code: PBG) has an entrepreneurial historical past tracing again to 1998.
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Today, it’s a high-end providers enterprise specializing in information, analytics, and software program growth. There are some non-core investments that administration is promoting and returning the capital to shareholders.
The group’s present income – in keeping with its outcomes for the six months ended September 2022 – reveals that almost all of its information, analytics and software program providers gross sales come from South Africa (92%), round 73% from the monetary providers sector. A-Grade, JSE-listed purchasers (high 10) account for 61% income.
Growth
Where gross sales are rising, its income retention price averages 134%, and most work is on a ‘time and materials’ foundation (a margin between what a advisor is billing their hours to PBT at and what PBT is billing the consumer at).
In different phrases, the core of PBT Group is a home specialist ICT consulting agency, and on this line it’s rising strongly – with South African natural revenues and Ebitda (earnings earlier than curiosity, taxes, depreciation, and amortisation) rising at 16% and 10% respectively, in keeping with its interim outcomes.
That mentioned, the entrepreneurial drive that has constructed PBT Group (virtually solely with natural development) can be pushing it into a quick rising European and UK growth (presently 3% of group income and rising organically in fixed foreign money at 19% yr on yr in H1:2023).
While income within the Australian section (initially constructed round a single massive medical support contract however now extra diversified) was down 14% in H1:2023 in fixed foreign money (5% of group income), the European and UK section goes after huge markets with refined information calls for that may be profitably serviced from South Africa (basic offshoring mannequin with gross sales in laborious foreign money in costly international locations and prices in delicate foreign money in low cost international locations – JSE-listed corporates, this is the way you go offshore).
Despite these positives, the group noticed solely flat earnings development in its first half – with gross sales up 4%, Ebitda up solely 3%, and normalised headline earnings per share (Heps) down 1% as one-off gross sales incentives ate up margin.
This shouldn’t be repeated within the second half of the group’s 2023 monetary yr.
Furthermore, for a bunch that has traditionally sturdy money technology, slower debtor funds (which ought to reverse within the second half) dented present interval’s money flows.
Yet the stability sheet has minimal debt, administration has and will maintain allocating capital in direction of natural development and dividends to shareholders (the group sometimes pays out a considerable portion of its earnings as dividends) and opportunistic share buybacks might bolster future returns much more.
Looking forward
Looking past H1:2023, PBT Group is excellently positioned for the growing digitisation of the world, rising information volumes and, extra subtly, more and more restricted expertise on this specialist space.
But why would an individual with the talents work for a providers/consulting group as an alternative of the last word consumer?
Consultants in consulting teams get the distinctive mixture of stability (wage or pipeline of work), consumer entry and having a number of purchasers that maintain their work fascinating as an alternative of only a single employer.
But why would purchasers use consulting companies as an alternative of unbiased consultants or everlasting employees?
Because PBT affords a one-stop-shop to resolve their issues, with inbuilt continuity for long-term tasks or work and holding their very own prices variable (quite than having to pay for everlasting employees contained in the organisation) – and all of this at solely a small premium.
Thus the function of consulting companies stays legitimate globally.
Indeed, the large $190 billion market cap of consulting and providers agency Accenture plc confirms this view.
But how a lot do you have to pay for shares in these corporations?
Well, Accenture plc trades on a price-earnings (PE) ratio of 28 instances, however PBT Group’s R1 billion ($57 million) market cap makes this comparability weak. Indeed, PBT Group can be fairly much more geographically concentrated with providers which can be much more specialised.
If we strip out of PBT Group’s market cap its non-core funding e book value of R187 million, the market cap valuing its operations is R848 million, or round 808 cents per share. Using its 12-month-rolling normalised Heps, PBT Group’s present operational PE is 10.7 instances.
Given the catastrophe that’s the JSE’s data expertise sector, EOH Holdings, and the dearth of different comparatives, it’s laborious to discover a home comparative. Is PBT’s 10.7 instances PE low cost versus Accenture’s 28 instances? Well, that can be a weak comparative.
Read: For tech, don’t even trouble trying on the JSE
Given PBT Group’s development historical past, its sectoral tailwinds and its rising offshore component, I might enterprise a view that the group’s valuation is on a budget facet.
I feel it possible that on common over the subsequent 5 to 10 years, the group can develop its earnings per share quicker than 10.7% yr on yr, implying that its PE a number of shouldn’t be capturing its future development potential.
Whether you agree with my view or not, PBT Group is actually in the correct area and has an excellent monitor file.
This is one small cap price watching.
Keith McLachlan is funding officer at Integral Asset Management.
