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Investors’ Chronicle: Accesso Technology Group, Pendragon, Petra Diamonds

BUY: Accesso Technology Group (ACSO)

With pandemic restrictions easing, Accesso is taking advantage of new customer behaviour, writes Christopher Akers.

Aim-listed Accesso Technology Group has recorded robust revenue and profit margin figures in its interim results to June 30. After a disappointing 2020, when the group was forced to focus on operational resilience and cost savings rather than growth due to the impact of the pandemic on the business, it appears as if the tide has turned.

The group, which provides software centred around virtual queuing and ticketing, enjoyed an operating profit margin of over 3 per cent compared with both an interim and full-year loss for 2020. Ebitda, a key group metric, exceeded analyst expectations as a record $9.8m (£7.2m) was recorded after a negative $10.4m last year. 

Group revenue of $50.7m was an increase of 106 per cent, shooting back to pre-pandemic levels. The Accesso Passport division, which facilitates virtual sales, was a standout performer by posting a 40 per cent or $6.3m revenue increase on the same period in 2019. 

Chief executive Steve Brown said that a combination of high labour costs for business and continuing capacity and social distancing measures helped drive revenue. Accesso’s software allows clients to reduce labour costs (as tasks can be completed virtually) and its operating model is now well placed to serve its clients in an uncertain pandemic environment. He also noted that attendance at client sites, such as amusement parks, is sitting at about 85 to 90 per cent of 2019 levels which indicates further revenue and growth potential. 

UK revenue notably struggled, up by $2.6m from last year but still down by $7.1m from 2019. This was due to pandemic restrictions which closed client sites such as West End theatres — recovery in this revenue stream is expected as events start to be held once more. Costs are estimated to increase by about 8-12 per cent by the end of the year, but this is simply a recalibration to a “normal” cost base rather than an unusual increase. 

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Performance for the year is expected to at least match pre-pandemic levels. The July 2021 revenue figures for passport and virtual queuing are 51 per cent up against July 2019, and a confident management expanded a share awards scheme to all staff. Analysts expect revenue and profitability to increase further due to changes in customer habits and the increasing shift to ecommerce. Broker Numis has an updated Ebitda forecast of $18.6m for 2022.

HOLD: Pendragon (PDG)

Car dealership Pendragon appears to be heading in the right direction after a sharp turnaround last year, writes Michael Fahy.

After walking away from merger talks with Lookers, the Nottingham-based company began culling loss-making sites in the UK and changed its operating model, laying off about 1,800 staff in an attempt to reduce overheads. It also put the remainder of its US dealership assets on the block.

The result of these actions meant that it declared its first half-year profit in three years.

Pendragon has been helped by a buoyant car sales market, from which it earns more than 90 per cent of its revenue. New car registrations in the UK rose 20.3 per cent in the first eight months of the year, according to the Society of Motor Manufacturers and Traders.

Showrooms were once again affected by Covid-19 lockdowns, with most remaining closed between January and April 12, but its improved digital sales channels (it delivered 40,000 cars during lockdowns) and the slimmed-down estate meant it converted an underlying loss of £31m in the first six months of last year into a profit of £35.1m.

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The company’s UK franchises sold more than 30,000 new cars, a like-for-like increase of 43 per cent on the same period last year. Like-for-like used car sales were up 38 per cent, with more than 48,000 units shifted.

These sales, as well as an improvement in working capital and contract hire vehicle movements, meant it generated almost £115m of cash from operations, the bulk of which was used to pay down £110m of net debt, improving its balance sheet.

The closure of 54 lossmaking UK sites (bringing the total to 150) and the sale of its last two US dealerships saw it trim about £75m of underlying costs compared with the same period in 2019, sacrificing just £24.1m of gross profit in the process, chief executive Bill Berman said.

When setting out its new strategy last year, he set a long term target of growing underlying pre-tax profit to £85m-£90m by 2025. Pendragon reiterated guidance that it expects a full-year profit of £55m-£60m this year, despite short-term headwinds due to supply disruptions caused by chip shortages and potential further Covid closures.

The results indicate the new strategy “is having a demonstrable impact”, said Andrew Wade, an analyst at Jefferies. He has a share price target just below its current valuation of 19p, based on estimated earnings per share of 2.1 and a price-to-earnings ratio of 9.

HOLD: Petra Diamonds (PDL)

© Jock Fistick/Bloomberg

The mining company is looking at a big year as sales from a handful of major stones land in its top line, writes Alex Hamer.

Miner Petra Diamonds made it back to positive earnings territory in its 2021 financial year, ending June 30. This was helped by moving the Williamson mine into the “for sale” accounting category, given it is not in production, but the numbers also exclude $40m (£29m) from a diamond sold in July. 

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This year has represented a turning point for Petra, which diluted its shareholders almost down to zero to deal with a debt crunch, handing the vast majority of the company to creditors. Net debt is down to $228m from $700m at the end of 2020 because of this move. 

Conditions are also improving in the luxury market Petra sells its stones into. Chief executive Richard Duffy believes that $40m for the 39-carat blue diamond is “likely the highest per carat price for a rough diamond ever achieved”. 

Petra’s adjusted cash profit for the year of $135m was double the figure from last year, helped by generally higher prices and more sales of “exceptional stones”, which are sold for $5m and above. 

The miner operates three mines in South Africa and has the Williamson mine in Tanzania, which is under care and maintenance. The plan was to re-open Williamson next year, but Petra “decided to review its strategic options” for the mine, while preparatory work for the restart continues. 

Broker Peel Hunt forecasts Petra’s cash profits to climb more than a quarter this financial year, to $172m. 

Petra has turned a corner, but there are still enough risks to keep us on the sidelines.


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