Pinewood Technologies: an entrepreneurial endeavor

The platform offered by Pinewood Technologies is among the best available

Investors ought to support it.

Pinewood Technologies (LSE: PINE), one of the few remaining globally renowned technology companies listed in London, is another example. The business was more well-known until 2024 as Pendragon, one of the biggest owners and operators of auto dealerships in the UK operating under the Stratstone and Evans Halshaw brands. What was a hidden gem of a tech platform was overshadowed by these divisions.

In early 2024, Pendragon sold the physical business to Lithia and Driveway, a group of US dealers, for almost 400 million dollars. Given the platforms' potential and profitability, the deal made a lot of strategic sense. The discontinued operations brought in £43 billion in revenue and made £81.6 million in profit before taxes in the 13 months leading up to the end of January 2024, right before the deal was finalized. This represented a profit margin of about 2%. The software division of the company reported £24.5 million in revenue and £9.9 million in profit before taxes, with a 40.4% margin.

Pinewood Technologies uses legacy technology.

The Pinewoods software division has been in business for a while. In order to assist dealers in managing different facets of their business, the Complete Automotive Record System (CARS) was introduced in 1981. Using a central database that staff members without formal training in complex software could easily access, the software was created to optimize every step of the process, from prospecting and vehicle management to workshop and parts management and accounting.

At first, this so-called dealer management system (DMS) was marketed as an economical method of running a business that essentially did away with the need for at least one employee in every department. The system allowed manufacturers to keep control over their franchisees, which further improved relations between franchised dealers and manufacturers. When product management is carried out through a readily available piece of software that is utilized by hundreds or thousands of other outlets, it is considerably simpler to control the product.

The software was first purchased by Pendragon in 1998 for £2 million. Three years after the company's founding, it employed ninety people. When Pinewood bought Pendragon, it was a client, and in the years that followed, it used its resources and size to propel a rapid expansion. With an agreement to export the software to Europe, Pinewood was awarded a contract in 2001 to supply the DMS system to Ford's 744 car dealerships in the UK.

An issue with the integrated business, though, was that Pinewoods software, no matter how good, would always be a part of one of the biggest dealer groups in the nation, which can be a source of conflict in a market that can be highly competitive. As a stand-alone company, the group can freely pursue clients in the UK and international markets without worrying about competition.

Pinewood, for instance, announced in October of last year that it had signed a five-year agreement with Marshall Motor Group to use its software. As a member of the Constellation Automotive Group, which also owns brands like We Buy Any Car, Marshall is one of the biggest franchise dealer groups in the UK, with 120 dealerships. It placed the company's software in four of the top 20 UK dealer groups and was the first major dealership group that was not affiliated to use it since Lithia purchased its physical operations.

The agreement with Lithia included Pinewood forming a joint venture in North America, with pilots scheduled to begin in 2025. Gaining traction in more than 300 dealerships owned by the joint venture partner was touted as a means of breaking into the £62.5 billion North American vehicle-systems market thanks to the agreement. In the middle of 2025, Pinewood consented to buy the 51 percent of the joint venture that it did not already own. Pinewood financed the acquisition by issuing 14.6 million new shares to its former partner, who signed a five-year contract to implement the software by the end of 2028. The joint-venture stake was valued at £76.5 million on an independent basis. By 2028, the rollout is anticipated to bring in £40 million in recurring revenue annually, with the potential to increase to £60 million.

Pinewood Technologies will continue to expand.

After going through a transformation for the last two years, Pinewood is now ready to expand quickly. Together with its fiscal first half 2025 results, the company released medium-term guidance last week. It predicted that underlying EBITDA would reach between 58 million and 62 million in fiscal 2028, which would represent a 56 percent compound annual growth rate.

Revenue increased by 21.7 percent in the first half of the year, and recurring revenue accounted for 85.7% of total revenue, while net user churn was only 0.3 percent. Although analysts at Berenberg think it will only take a little time for the company's gross margin to return to 90 percent, it only decreased to 86.7% from earlier in the period. Accelerated vertical sales and improved AI capabilities are anticipated outcomes of the company's March acquisition of technology group Seez.

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Unfortunately, Pinewoods has a well-known growth story and is not a cheap stock. It is currently trading at a 74.7 forward price-to-earnings (p/e) ratio. However, the company's growth compensates for its lack of value. By fiscal 2028, Berenberg projects that the company will trade at a p/e multiple of less than 20, but more intriguingly, the free cash-flow yield will rise into the high single digits, reaching at least 7 percent by fiscal 2027. Additionally, analysts predict that at this point, the company's cash balance sheet will total 94 million, compared to its market capitalization of 513 million. To put it another way, it is evident that this is a significantly cash-rich and cash-generating company with a long growth trajectory in the years to come.