End of Austin Ribbon deal a positive for Pivot Technology, says Cantor Fitzgerald Canada

The termination of its agreement with Austin Ribbon and Computer is actually a positive for Pivot Technology Solutions (Pivot Technologies Stock Quote, Chart, News: TSXV:PTG) because selling direct offers it a better opportunity, says Cantor Fitzgerald Canada analyst Ralph Garcea.

This morning, Pivot Technology Solutions announced that its distribution, administrative services and licence agreements with Austin Ribbon & Computer Supplies Inc. will end on August 31 of this year.

“While short-term, the termination of the agreements by Austin Ribbon will impact our topline, we are very well positioned to leverage the geographic footprint, capabilities and networks of the wider Pivot organization, and penetrate the markets Austin Ribbon is active in,” said Pivot CEO Kevin Shank.

Garcea says the move will positively affect Pivot’s margin mix.

“While $120.2M could be the maximum annual revenue loss from this agreement, we believe PTG is very well positioned to leverage the geographic footprint, capabilities, and networks of the wider Pivot organization, to sell direct into the Texas government and SLED markets – generating more than $120M in annual revenue,” he says. “The agreement with Austin Ribbon was mainly a products distribution agreement and carried low margins. Kevin Shank, PTG CEO, expressed on the past two earnings calls his strong intentions of focusing growth on higher margin managed services business.”

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $1.50 on Pivot Technology, implying a return of 270 per cent at the time of publication.