PBT: the little tech company that could

PBT Group is a really interesting business that gives local investors a way to access themes like “big data” right here on the JSE. The share price is up nearly 10% this year, significantly bucking the bear market trend.

PBT describes itself as a “technology agnostic data specialist organisation” – although this may sound like the usual corporate marketing gumph to you, there’s a critical point here: PBT isn’t tied to any particular technology provider or product. The group provides specialist services that clients can use whether they are running on AWS, Azure or anything else.

Around 91% of revenue is earned from time and material fees, with 9% from projects and fixed-price contracts. The latter has reduced significantly from 25% of group revenue in 2019.

This model does a great job of keeping the till ringing, with strong organic revenue growth. The management team here knows what they are doing, with cost management leading to EBITDA margin expansion.

To put some numbers to it, revenue jumped by 24% in the year ended March 2022, coming in at R975.7 million. Operating profit grew by 45%, as the group achieved higher operating margins.

Here’s something you won’t see every day: earnings before interest, taxes, depreciation and amortisation (EBITDA) of R138.6 million was converted into R135.8 million in cash from operations. That is a near-perfect cash conversion performance, which speaks to high quality earnings and a business model that is a well-oiled machine.

Headline earnings per share increased by 64% to 82.89 cents, so yesterday’s closing price is a Price/Earnings (P/E) multiple of 10.25x. On a normalised HEPS basis (75.56 cents), the P/E is 11.25x.

The total dividend for the year was 57 cents per share, so the yield is 6.7%.

Looking at divisional insights, the South African business has a strong pipeline across its service offerings. A shortage of local skills remains a hindrance though, with the PBT Cloud Academy trying to play a role in addressing this.

The group says that its European business is “starting to fulfil its anticipated potential” and described the United Kingdom business as being an “outstanding contributor” – this is all good stuff. PBT is even starting to service US-based clients from the European operation.

The business in Australia is focused on the healthcare industry, with a team based in Melbourne that is servicing clients in Australia and even in the UK.

PBT isn’t the most liquid counter around, yet it is a favourite among small cap investors who want to buy exposure to a growth industry at a reasonable multiple. The P/E isn’t cheap anymore, but the business is doing a good job of justifying why. This is a great example of the opportunities on the JSE that not enough people talk about.

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