Datatec — Mixed performance in H123, special dividend

Datatec (JSE: DTCJ)

Currency in ZAR

Last close As at 28/11/2023

ZAR35.04

−0.09 (−0.26%)

Market capitalisation

ZAR8,277m

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Datatec — Mixed performance in H123, special dividend

Datatec’s trading update indicated slowing momentum in H123, with geopolitical and economic headwinds and the strengthening dollar offsetting demand-driven technology tailwinds. Weakness was principally down to Logicalis LatAm. Management expects reported EPS of between 4.5 and 5.5 US cents, a year-on-year fall of between 13% and 29%, with underlying EPS expected to be between 3.0 and 4.0 US cents, a year-on-year fall of between 52% and 64%. Our estimates anticipate a year-on-year rise in FY23 revenues and earnings of 6% and 5% respectively, which now appears optimistic. We will review our estimates with the full H123 results, due on or around 3 November 2022. On the brighter side, Datatec will return the initial gross proceeds from the disposal of Analysys Mason to shareholders via a £135.1m cash dividend (ZAR12.50 per share), with a payment date of 5 December 2022. There is also a scrip alternative. Recognising the different factors affecting their underlying performance, management will break out Logicalis LatAm from Logicalis International from the H123 results onwards. This could also be seen as a statement of intent for unlocking the strategic value of Logicalis in the future.

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Datatec

Mixed performance in H123, special dividend

H123 trading update

IT services

11 October 2022

Price

ZAR42.85

Market cap

ZAR10bn

ZAR18.1/US$

Net debt (US$m) at 28 February 2022

130.1

Shares in issue

221.8m

Free float

86%

Code

DTCJ

Primary exchange

Johannesburg

Secondary exchange

N/A

Share price performance

Business description

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 International (IT services); and Logicalis LatAm (Logicalis’s Latin American business).

Analysts

Richard Williamson

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

Datatec is a research client of Edison Investment Research Limited

Datatec’s trading update indicated slowing momentum in H123, with geopolitical and economic headwinds and the strengthening dollar offsetting demand-driven technology tailwinds. Weakness was principally down to Logicalis LatAm. Management expects reported EPS of between 4.5 and 5.5 US cents, a year-on-year fall of between 13% and 29%, with underlying EPS expected to be between 3.0 and 4.0 US cents, a year-on-year fall of between 52% and 64%. Our estimates anticipate a year-on-year rise in FY23 revenues and earnings of 6% and 5% respectively, which now appears optimistic. We will review our estimates with the full H123 results, due on or around 3 November 2022. On the brighter side, Datatec will return the initial gross proceeds from the disposal of Analysys Mason to shareholders via a £135.1m cash dividend (ZAR12.50 per share), with a payment date of 5 December 2022. There is also a scrip alternative. Recognising the different factors affecting their underlying performance, management will break out Logicalis LatAm from Logicalis International from the H123 results onwards. This could also be seen as a statement of intent for unlocking the strategic value of Logicalis in the future.

Year end

Revenue
(US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

02/21

4,109

73.1

13.6

6.6

17.4

2.8

02/22

4,637

85.0

18.7

39.3

12.6

16.6

02/23e

4,919

95.9

19.6

6.5

12.1

2.8

02/24e

5,117

107.3

25.2

8.4

9.4

3.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Management expects reported EPS of between 4.5 and 5.5 US cents, a year-on-year fall of between 13% and 29% (H122: 6.3 US cents). Headline EPS is expected to be between 4.0 and 5.0 US cents, a year-on-year fall of between 21% and 37% (H122: 6.3 US cents). Underlying EPS (excluding one-off items, M&A-related costs and corporate actions) is expected to be between 3.0 and 4.0 US cents, a year-on-year fall of between 52% and 64% (H122: 8.3 US cents).

As was reported alongside the FY22 results and flagged in our FY22 note, Potential strategic sale of Analysys Mason, Logicalis LatAm had a challenging H123, but supply chain constraints have started to ease in H223. The remainder of Logicalis (Logicalis International) was relatively resilient in H123, while Westcon performed strongly. The backlog at both Westcon and Logicalis remained high with both businesses maintaining strong order books, despite supply chain pressures.

Given the number of factors affecting the group’s underlying performance, we intend to review our estimates with the full H123 results, as the figures are likely to require a lot of unpicking.

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