Datatec is a South Africa-listed multinational ICT business, serving clients globally, predominantly in the networking and telecoms sectors. The group operates through three main divisions: Westcon International (distribution); Logicalis (IT services); and Analysys Mason (consulting).
H122 underlying earnings per share (uEPS) is expected to be between 8.0 and 8.5 US cents, more than double the H121 comparator at the onset of the COVID-19 pandemic (H121: 3.9 US cents) and c 50% of our FY22 uEPS estimates (16.5 US cents). Under JSE rules, management is required to put out a further trading update (following the 15 September trading update), since H122 EPS estimates are expected to be more than 20% above the H121 comparator. As we flagged in our 15 September note, Datatec’s operational gearing magnified the top-line performance (H122 revenues rose 15% y-o-y to c US$2.26bn) at the earnings level. Assuming momentum is carried into H222, and considering Datatec’s historical seasonal weighting to the second half of the year, the group remains on track to meet and potentially exceed our FY22 earnings estimates.
Catalysts for upside have strengthened significantly over the past couple of months with the global IT industry offering attractive defensive growth, leading to significant multiple inflation. Most recently, Exclusive Networks, a competitor to Westcon, set its IPO price at €20, valuing the firm at c €1.8bn (c 25x 2020 EBITDA). Exclusive is cyber security focused and growing rapidly, but our SOTP implies a value for Westcon of 9.6x FY22 EBITDA. Datatec group currently trades on 4.7x FY21 EV/EBITDA.