Datatec reported strong growth in gross profit, adjusted EBITDA, underlying EPS (uEPS) and cash generation in FY25. Restructuring in prior years has improved the operational efficiency of each division and the supply chain has normalised, allowing customer demand to be met on a timely basis. As digital transformation specialists, the group continues to benefit from strong demand for cybersecurity solutions, hybrid infrastructure and cloud-based solutions, and expects the growing adoption of AI to prompt enterprises to upgrade their IT infrastructure. Increasing confidence in the group’s ability to generate cash supports the ongoing share buyback programme and raised dividend payout target. We have upgraded our FY26 and FY27 estimates to reflect better performance, which in turn lifts our valuation.

Datatec reported a strong set of results for FY25, with gross profit, adjusted EBITDA and underlying EPS all ahead of our forecasts. All three divisions reported strong growth in adjusted EBITDA, highlighting improving conversion of gross profit to adjusted EBITDA. Net debt reduced materially as the company generated a strong operating cash inflow of $286.8m. This better performance has prompted an increase in the dividend payout ratio. The company expects the trend towards higher software sales and annuity services to continue, which should further benefit Datatec’s margins and cash profile. The board expects all divisions will continue to improve their financial performance in FY26 and remains focused on unlocking shareholder value through its ongoing strategic review. We are reviewing our forecasts.

Datatec previously issued a trading update for FY25 confirming that both Westcon and Logicalis International continued to deliver excellent financial performances in H225, and despite generating lower gross profits year-on-year in FY25, Logicalis Latin America delivered an overall increase in financial performance. Management has now confirmed the ranges it expects to report for EPS, with underlying EPS of 30.0–31.0 cents ahead of our 27.9 cents forecast. We maintain our forecasts pending results on 27 May.