Datatec — Operational focus drives H125 profit growth

Datatec (JSE: DTCJ)

Last close As at 03/12/2024

ZAR45.13

0.41 (0.92%)

Market capitalisation

ZAR10,526m

More on this equity

Research: TMT

Datatec — Operational focus drives H125 profit growth

In H125, while revenue declined due to mix and net revenue accounting, Datatec grew gross profit by 3.5% y-o-y and adjusted EBITDA by 18.5%, resulting in a 56.2% increase in underlying EPS (uEPS). Both Westcon and Logicalis International delivered strong profit growth, while Logicalis Latin America managed to offset lower revenues with reductions in its cost base. Management continues to expect a better financial performance from all three businesses in FY25. We have upgraded our forecasts to reflect the strong H125 performance, lifting FY25 uEPS by 10% and reducing year-end net debt by 12%.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Datatec

Operational focus drives H125 profit growth

H125 results

Software and comp services

14 November 2024

Price

ZAR38.87

Market cap

ZAR9,043m

ZAR17.98/$

Net debt ($m) at end H125

108.4

Shares in issue

232.6m

Free float

81%

Code

DTCJ

Primary exchange

JSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.2

12.1

5.6

Rel (local)

8.1

8.3

(9.7)

52-week high/low

ZAR41.62

ZAR33.61

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 (IT services in Latin America).

Next events

FY25 trading update

March 2025

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Datatec is a research client of Edison Investment Research Limited

In H125, while revenue declined due to mix and net revenue accounting, Datatec grew gross profit by 3.5% y-o-y and adjusted EBITDA by 18.5%, resulting in a 56.2% increase in underlying EPS (uEPS). Both Westcon and Logicalis International delivered strong profit growth, while Logicalis Latin America managed to offset lower revenues with reductions in its cost base. Management continues to expect a better financial performance from all three businesses in FY25. We have upgraded our forecasts to reflect the strong H125 performance, lifting FY25 uEPS by 10% and reducing year-end net debt by 12%.

Year
end

Revenue
($m)

PBT*
($m)

Diluted EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

02/23

5,143

86.5

24.1

77.7

9.0

35.9

02/24

5,458

76.5

19.7

7.0

11.0

3.3

02/25e

5,304

122.8

30.5

9.3

7.1

4.3

02/26e

5,509

141.5

35.3

11.2

6.1

5.2

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

Gross profit and adjusted EBITDA growth in H125

With an increasing proportion of software and services sold on an agency basis and therefore reported on a net revenue basis, Datatec’s revenue performance is becoming uncoupled from profit performance. Westcon revenue was down 3% while adjusted EBITDA grew 14%. Logicalis International revenue declined 11% while adjusted EBITDA was 35% higher. Logicalis Latin America was down 18% yo-y, although actually grew 3% in constant currency, while adjusted EBITDA was essentially flat after a reduction in operating costs. A working capital inflow resulted in net debt of $108.4m at the end of H125, down from $123.1m at the end of FY24.

Upgrading forecasts on better profitability

Management confirmed that it expects all divisions to deliver improved financial performance in FY25. Markets in Europe are softer while the US and Asia-Pacific remain strong. In Latin America, after several years of difficult trading, the outlook is more promising. Based on the strong performance in H125, we upgrade our gross profit and adjusted EBITDA forecasts for Westcon and Logicalis International while trimming Logicalis Latin America, resulting in a 10% upgrade to uEPS in FY25.

Valuation: Self-help to unlock value

Datatec currently trades on an EV/adjusted EBITDA multiple of 2.7x FY25e and 2.5x FY26e, well below its peer group (average of 8.5x across for both years). On a conservative sumof-the-parts (SOTP) valuation using peer group averages, we estimate that Datatec could be worth 102% more than the current share price. Sustained recovery in trading in Logicalis LatAm, gross profit growth and improving conversion of gross profit to EBITDA across the group will be key to reducing the discount to peers. The ongoing strategic review continues to seek ways to address the persistent valuation gap. In the shorter term, management is focused on operational improvements while interest rates are high and M&A activity muted.

Review of H125 results

Exhibit 1 summarises H125 results.

Exhibit 1: H125 results highlights

$m

H124

H125

y-o-y

Revenue

2,762.7

2,612.1

-5.5%

Gross profit

417.9

432.7

3.5%

EBITDA

80.6

102.5

27.2%

Share-based payments

7.1

6.1

-13.3%

Restructuring charges and other adjustments

1.8

(2.7)

-247.9%

Adjusted EBITDA

89.4

106.0

18.5%

Operating profit

50.2

71.9

43.1%

Profit after tax

15.7

30.2

91.8%

Minority interests

(1.8)

(4.3)

145.5%

Net income to equity holders

14.0

25.9

85.0%

Adjustments

0.2

(1.8)

N/A

Headline earnings

14.1

24.0

70.0%

Adjustments

2.0

1.9

-6.2%

Underlying earnings

16.2

25.9

60.4%

Headline EPS (HEPS) - c

6.3

10.5

66.7%

Underlying EPS (uEPS) - c

7.3

11.4

56.2%

Net debt

174.8

108.4

-38.0%

Gross margin

15.1%

16.6%

1.4pp

EBITDA margin

2.9%

3.9%

1.0pp

Adjusted EBITDA margin

3.2%

4.1%

0.8pp

Operating margin

1.8%

2.8%

0.9pp

Source: Datatec, Edison Investment Research

Datatec reported a revenue decline of 5.5% y-o-y for H125, with an increasing proportion of net revenue-accounted software and services the main reason for the decline (we discuss divisional performance below). Conversely, gross profit increased 3.5% y-o-y resulting in a 1.4pp increase in group gross margin to 16.6%. Reflecting good cost control, EBITDA increased 27.2% y-o-y, resulting in a 1pp increase in the EBITDA margin to 3.9%. After adding back share-based payments of $6.1m and deducting a net one-off credit of $2.7m, adjusted EBITDA increased 18.5% y-o-y. The adjusted EBITDA margin increased 0.8pp to 4.1%. Net finance costs of $28.8m in H125 were 14.4% higher year-on-year due to higher rates and higher average utilisation of facilities. Headline EPS from continuing operations, which excludes the post-tax gains and losses from the disposal of fixed assets, increased 67% y-o-y. Underlying EPS from continuing operations (adjusts headline EPS by excluding impairment of intangible assets, amortisation of acquired intangibles, acquisition-related adjustments and fair value movements, restructuring costs, one-off tax items affecting EBITDA, and costs relating to acquisitions, integrations and corporate actions) increased 56% year-on-year.

Net debt at period-end was $108.4m, down from $123.1m at the end of FY24. The group generated an inflow from working capital of $3.6m, helped by the higher proportion of software in H125 compared to H124.

The company declared an interim dividend of ZAR0.75/US$0.04 available as cash or with a scrip alternative.

Divisional performance

Exhibits 2 and 3 show recurring revenue by division.

Exhibit 2: Recurring revenue and growth by division

Exhibit 3: Recurring revenue share of total revenue

Source: Datatec

Source: Datatec

Exhibit 2: Recurring revenue and growth by division

Source: Datatec

Exhibit 3: Recurring revenue share of total revenue

Source: Datatec

Exhibit 4 summarises divisional revenue and profitability.

Exhibit 4: Divisional performance

Revenue ($m)

H125

H124

y-o-y

H125

H124

Westcon

1,801

1,854

-3%

Logicalis International

575

645

-11%

Logicalis Latin America

215

263

-18%

Corporate and management consulting

21

0

N/A

2,612

2,763

-5%

Gross profit ($m)

Gross margin (%)

y-o-y pp

Westcon

216

204

6%

12.0

11.0

1.0

Logicalis International

164

158

4%

28.5

24.4

4.1

Logicalis Latin America

48

57

-15%

22.4

21.6

0.9

Corporate and management consulting

4

0

N/A

20.7

N/A

433

418

4%

16.6

15.1

1.4

EBITDA ($m)

EBITDA margin (%)

Westcon

70

60

16%

3.9

3.2

0.6

Logicalis International

37

26

44%

6.5

4.0

2.5

Logicalis Latin America

8

6

38%

3.7

2.2

1.5

Corporate and management consulting

(12)

(11)

14%

102

81

27%

3.9

2.9

1.0

Adjusted EBITDA ($m)

Adjusted EBITDA margin

Westcon

71

62

14%

4.0

3.4

0.6

Logicalis International

38

28

35%

6.7

4.4

2.3

Logicalis Latin America

6

6

-6%

2.6

2.3

0.3

Corporate and management consulting

(9)

(7)

28%

106

89

18%

4.1

3.2

0.8

Source: Datatec, Edison Investment Research

Exhibit 5: Adjusted EBITDA/gross profit by division, FY22–H125

Source: Datatec

Westcon: Evolving product mix, strong margin progression

Westcon reported a revenue decline of 2.9% y-o-y in H125, while recurring revenue increased 16% y-o-y to make up 48% of revenue (40% in H124). The company noted that it saw continued good demand for cybersecurity products (+23% y-o-y) but saw softening demand for enterprise networking products (-23% y-o-y) while cloud infrastructure revenues increased 7% y-o-y. This was evident in the lower proportion of revenues contributed by Comstor at 38% in H125 versus 44% in H124. Software grew as a proportion of revenue, from 40% in H124 to 49% in H125 (Exhibit 7), even as the volume of software and services reported on a net revenue basis increased.

Despite the revenue decline, gross profit grew 6% y-o-y and the gross margin expanded 1pp to 12.0%, helped by a higher proportion of net revenue accounted products, which effectively have a 100% gross margin, as well as the contribution from financial services. Adjusted EBITDA grew 14% y-o-y with the adjusted EBITDA margin expanding 0.6pp to 4.0%. To exclude the effect of the increasing proportion of net revenue accounted products (which have the effect of boosting margins), we track the rate of conversion of gross profit into adjusted EBITDA in Exhibit 5. Westcon has made good progress in increasing the conversion rate and is close to the 35% target it has previously suggested.

Exhibit 6: Revenue by technology

Exhibit 7: Revenue by segment

Source: Datatec

Source: Datatec

Exhibit 6: Revenue by technology

Source: Datatec

Exhibit 7: Revenue by segment

Source: Datatec

Reduced working capital requirements helped Westcon net debt fall from $67.7m at the end of H124 and $88.9m at the end of FY24 to $25.6m at the end of H125. Inventory turns improved, at 10.8x (H124 9.7x, FY24 9.6x). Days sales outstanding fell from 69 in FY24 to 67 in H125 while days payables outstanding increased to 90 from 88 in H124 and 86 in FY24.

Logicalis International: Strong margin growth

Logicalis International (LI) revenue declined 10.9% y-o-y in H125 (10.2% in constant currency), again affected by the increase in net revenue-accounted software and services. Recurring revenue declined 4% y-o-y to make up 41% of revenue, up from 38% in H124. The business has seen solid order intake and supplier lead times have stabilised. By geography (Exhibit 9), revenue declined 17% in North America, 8% in EMEA and 7% in Asia-Pacific. Cloud revenue was up 35% y-o-y and grew across all regions, making up 36% of revenue, up from 24% in H124. Hardware sales declined 19% y-o-y, software sales declined 22% (although they increased on a gross invoiced basis) and professional services declined 5%, while annuity managed services increased 9% (Exhibit 8).

Exhibit 8: Revenue by type

Exhibit 9: Revenue by geography

Source: Datatec

Source: Datatec

Exhibit 8: Revenue by type

Source: Datatec

Exhibit 9: Revenue by geography

Source: Datatec

Gross profit increased 4.1% y-o-y with gross margin expanding 4.1pp to 28.5%, helped by the increased contribution from annuity services. Adjusted EBITDA increased 35.0% y-o-y with the adjusted EBITDA margin increasing 2.3pp to 6.7%, as operating expenses declined 3.7% y-o-y, helped by headcount reductions in the US and Europe in H224. Adjusted EBITDA excluded share-based payments of $1.2m. Management noted a strong performance in the US and slight growth in EBITDA in Asia-Pacific. Performance in the UK improved from break-even in FY24 whereas Germany saw a weaker performance. South Africa reduced EBITDA losses.

Exhibit 5 shows that LI improved its conversion of gross profit to adjusted EBITDA in H125, increasing from 21.9% in FY24 to 23.4% in H125.

The company noted that net working capital was stable compared to FY24. LI net debt at the end of H125 of $96.3m was higher than the $79.3m at end of FY24 but reduced from the $113.4m reported at the end of H124.

Logicalis Latin America: Encouraging signs

Logicalis Latin America (LLA) revenue declined 18.1% y-o-y in H125 (growth of 2.7% in constant currency), mainly due to lower opening backlog, although the business saw a strong recovery in orders during H125. Revenue from Brazil declined 29% y-o-y, northern Latin America declined 6% and southern Latin America declined 8% (mainly driven by weakness in Chile). Recurring revenue declined 10% y-o-y to 47% of revenue (H124: 43%) mainly due to the cancellation of some multi-year contracts in the Brazilian telecom sector. Cloud revenue declined 16% y-o-y, making up 22% of revenue (flat y-o-y). Hardware revenue declined 29% y-o-y, software declined 7%, professional services declined 6% and annuity managed services declined 13% (Exhibit 11).

Exhibit 10: Revenue by geography

Exhibit 11: Revenue by type

Source: Datatec NOLA: northern Latin America SOLA: southern Latin America

Source: Datatec

Exhibit 10: Revenue by geography

Source: Datatec NOLA: northern Latin America SOLA: southern Latin America

Exhibit 11: Revenue by type

Source: Datatec

Gross profit declined 14.8% y-o-y while the gross margin increased 0.9pp to 22.4%. Operating costs fell by 20.9% y-o-y, mainly due to headcount reductions in Brazil, resulting in adjusted EBITDA falling by only 6.3% y-o-y and the adjusted EBITDA margin increasing by 0.3pp to 2.6%. Adjusted EBITDA excludes share-based payments of $0.3m (H124: $0.2m), restructuring charges of $0.6m and tax-related credits of $3.3m.

Looking at the business’s ability to convert gross profit to adjusted EBITDA, Exhibit 5 shows that this rate dropped from 26.1% in FY22 to 10.7% in FY24. This was in large part due to foreign exchange losses as the Argentine peso was devalued versus the US dollar. In H125 it increased to 11.6% and we would expect that as the business starts to recover, the conversion rate should rapidly increase back above 20%.

As the ability to make payments out of Argentina improved during H125, trade payables reduced and LLA net debt increased to $24.4m at the end of H125 from the $5.2m in net cash at end of FY24 and the net debt of $25.5m reported at the end of H124.

Outlook and changes to forecasts

Overall, the group continues to benefit from secular technology growth trends, including strong demand for cyber security and hybrid working, and the adoption of GenAI. As companies look to integrate GenAI into their internal and customer-facing processes, they will need help to build adequate hardware infrastructure and to integrate ChatGPT (or alternative) solutions into their existing IT estate, driving demand for both Westcon and Logicalis.

In Westcon, management noted that it has seen softening demand, particularly in Europe, against the uncertain geopolitical and economic backdrop. However, it continues to focus on operational improvement and using its digital platform to drive opportunities.

Logicalis Latin America has had three challenging years, but the outlook is now looking more encouraging, and good cost control positions the business well for the return of stronger demand. The Brazilian business had a large exposure to the telecoms sector, which has reduced, and is now more focused on enterprise and public sector customers.

All divisions are expected to deliver a better financial performance in FY25 compared to FY24.

We have revised our forecasts to reflect H125 results, factoring in lower revenue but increased gross profit and adjusted EBITDA for Westcon and Logicalis International. We have reduced our forecasts for Logicalis Latin America.

Overall, total adjusted EBITDA increases 4% in FY25, 5% in FY26 and 4% in FY27 and this translates to an increase in uEPS of 10% in FY25, 13% in FY26 and 10% in FY27. As the dividend is set at one-third of uEPS, our dividend forecasts increase by the same amount. Reflecting better than expected working capital control, we reduce our net debt forecasts for each year by 11–13%.

Exhibit 12: Changes in estimates

$m

FY25e

FY25e

y-o-y

FY26e

FY26e

y-o-y

FY27e

FY27e

y-o-y

Old

New

growth

Change

Old

New

growth

Change

Old

New

growth

Change

Revenue

5,731

5,304

(3%)

(7%)

5,991

5,509

4%

(8%)

6,264

5,704

4%

(9%)

Gross Profit

909

900

4%

(1%)

947

933

4%

(1%)

987

966

3%

(2%)

Adj. EBITDA

224

234

22%

4%

240

253

8%

5%

257

268

6%

4%

EBITDA

214

226

27%

6%

230

243

7%

6%

247

258

6%

4%

Normalised operating profit

164

177

35%

8%

178

191

8%

7%

194

205

7%

6%

Profit before tax (normalised)

111.3

122.8

61%

10%

127

142

15%

11%

142

156

10%

9%

Net income (normalised)

65.0

72.9

59%

12%

75

85

17%

13%

84

94

10%

11%

EPS - diluted normalised (c)

27.4

30.5

55%

11%

31.6

35.3

16%

12%

35.6

38.9

10%

9%

EPS - basic reported (c)

24.1

26.8

31%

11%

28.7

32.0

20%

12%

33.11

36.3

13%

10%

Headline EPS - basic (c)

24.1

26.0

83%

8%

28.7

32.0

23%

12%

33.11

36.3

13%

10%

Company basic underlying uEPS (c)

25.4

27.9

63%

10%

29.7

33.6

20%

13%

33.9

37.4

11%

10%

Dividend (c)

8.5

9.3

32%

10%

9.9

11.2

20%

13%

11.3

12.5

11%

10%

Revenue growth (%)

5.0

(2.8)

-8.9pp

-7.8pp

4.6

3.9

6.7pp

-0.7pp

4.6

3.5

-0.3pp

-1.0pp

Gross Margin (%)

15.9

17.0

1.2pp

1.1pp

15.8

16.9

0.0pp

1.1pp

15.8

16.9

0.0pp

1.2pp

Adj. EBITDA Margin (%)

3.9

4.4

0.9pp

0.5pp

4.0

4.6

0.2pp

0.6pp

4.1

4.7

0.1pp

0.6pp

Normalised Operating Margin

2.9

3.3

0.9pp

0.5pp

3.0

3.5

0.1pp

0.5pp

3.1

3.6

0.1pp

0.5pp

Net debt

207

181

47%

(12%)

183

160

(12%)

(13%)

157

140

(13%)

(11%)

Revenue

Westcon

3,869

3,630

-1%

-6%

4,063

3,775

4%

-7%

4,266

3,907

3%

-8%

Logicalis

1,821

1,632

-7%

-10%

1,886

1,690

4%

-10%

1,954

1,750

4%

-10%

Logicalis International

1,288

1,175

-6%

-9%

1,326

1,210

3%

-9%

1,366

1,247

3%

-9%

Logicalis Latam

533

456

-11%

-14%

560

479

5%

-14%

588

503

5%

-14%

Corporate & Management Consulting

40

42

N/A

N/A

42

44

N/A

N/A

44

46

N/A

N/A

Total

5,731

5,304

-3%

-7%

5,991

5,509

4%

-8%

6,264

5,704

4%

-9%

EBITDA

Westcon

132.3

143.5

19%

9%

140.4

153.7

7%

9%

148.9

162.1

5%

9%

Logicalis

97.7

106.7

37%

9%

105.8

113.4

6%

7%

114.3

120.5

6%

5%

Logicalis International

76.7

85.6

29%

12%

81.7

90.0

5%

10%

86.9

94.6

5%

9%

Logicalis Latam

21.0

21.1

83%

0%

24.1

23.4

11%

-3%

27.4

25.9

10%

-6%

Corporate & Management Consulting

(16.1)

(24.0)

12%

49%

(16.2)

(24.4)

2%

50%

(16.4)

(24.8)

2%

51%

Total

213.9

226.3

27%

6%

229.9

242.7

7%

6%

0.2

257.8

6%

4%

Adjusted EBITDA

Westcon

134.3

145.5

21%

8%

142.4

155.7

7%

9%

150.9

164.1

5%

9%

Logicalis

100.4

106.8

23%

6%

108.5

116.2

9%

7%

117.1

123.2

6%

5%

Logicalis International

79.1

88.0

19%

11%

84.1

92.4

5%

10%

89.3

97.0

5%

9%

Logicalis Latam

21.4

18.8

49%

-12%

24.4

23.8

26%

-3%

27.7

26.2

10%

-5%

Corporate & Management Consulting

(10.8)

(18.7)

24%

73%

(11.0)

(19.1)

2%

74%

(11.1)

(19.5)

2%

75%

Total

223.9

233.6

22%

4%

239.9

252.7

8%

5%

256.9

267.8

6%

4%

Adjusted EBITDA margin

Westcon

3.5%

4.0%

0.7pp

0.5pp

3.5%

4.1%

0.1pp

0.6pp

3.5%

4.2%

0.1pp

0.7pp

Logicalis International

6.1%

7.5%

1.6pp

1.3pp

6.3%

7.6%

0.1pp

1.3pp

6.5%

7.8%

0.1pp

1.2pp

Logicalis Latam

4.0%

4.1%

1.7pp

0.1pp

4.4%

5.0%

0.8pp

0.6pp

4.7%

5.2%

0.3pp

0.5pp

Source: Edison Investment Research

Valuation

On a group basis, Datatec is valued on a minority-adjusted EV/adjusted EBITDA multiple of 2.7x FY25e and 2.5x FY26e and on a normalised P/E basis of 7.1x FY25e and 6.1x FY26. To more accurately reflect the dynamics of the different divisions, we continue to value Datatec on a SOTP basis. We note that we have upgraded group adjusted EBITDA by 4% for FY25 and 5% for FY26.

Using the EV/EBITDA peer multiples in Exhibit 13, FY25e net debt (we add $150m to this as the group typically operates at a higher level of net debt across the year) and a 30% discount (South Africa sovereign risk and holding company discount), we arrive at a per-share valuation of ZAR78.68. This implies 102% upside from the current share price.

Exhibit 13: Sum-of-the-parts valuation

$m

Revenues

Adjusted EBITDA

FY25e

FY26e

FY25e

FY26e

Logicalis International

1,175

1,210

88

92

Logicalis Latin America

456

479

19

24

Westcon

3,630

3,775

146

156

Mason Advisory and central costs

(19)

(19)

Peer multiples (x) 

Revenues

EBITDA

FY25e

FY26e

FY25e

FY26e

Logicalis International

0.8

0.8

9.2

8.5

Logicalis Latin America

0.4

0.3

4.4

3.8

Westcon

0.4

0.4

9.1

8.1

Mason Advisory and central costs

8.0

8.0

 $m

Implied EV based on

Revenues

EBITDA

Economic interest

Mean EV

FY25e

FY26e

FY25e

FY26e

Logicalis International

986

960

805

783

91%

726

Logicalis Latin America

173

162

83

90

68%

59

Westcon

1,595

1,508

1,323

1,254

89%

1,150

Mason Advisory and central costs

(150)

(153)

100%

(150)

Group EV

1,786

Assumed average net debt

(331)

SOTP – Equity value

1,454

Discount for: RSA sovereign risk, holding company risk

30%

Adjusted equity value

1,018

Shares in issue (m)

232.6

SOTP value per share (US$)

4.38

SOTP value per share (ZAR)

78.68

Latest share price (ZAR)

38.87

Upside from latest share price

102%

Source: Edison Investment Research, LSEG Data & Analytics (as at 13 November)

The strategic review to close the valuation gap is ongoing. In the current higher interest rate environment, we believe that M&A transactions are less likely. Management is focused on operational improvements across the three divisions, as evidenced by the improving quality of earnings, and has brought senior management into the equity of the individual businesses. We believe further transactions may take place in the medium term when market conditions start to improve.


Exhibit 14: Financial summary

28-February

$'000s

2020

2021

2022

2023

2024

2025e

2026e

2027e

INCOME STATEMENT

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

Revenue

 

 

4,214,421

4,109,463

4,546,398

5,143,125

5,457,947

5,303,600

5,508,977

5,703,590

Cost of Sales

(3,472,843)

(3,418,939)

(3,816,630)

(4,398,618)

(4,595,711)

(4,403,919)

(4,575,674)

(4,737,644)

Gross Profit

741,578

690,524

729,768

744,507

862,236

899,681

933,302

965,946

Adjusted EBITDA

 

 

166,280

152,490

158,922

180,182

192,085

233,598

252,738

267,799

EBITDA

158,657

118,619

143,457

98,246

177,589

226,254

242,738

257,799

Normalised operating profit

 

 

105,157

97,859

100,540

123,677

131,186

177,396

191,237

205,207

Amortisation of acquired intangibles

(11,297)

(8,635)

(10,100)

(11,629)

(3,599)

(8,000)

(5,500)

(4,000)

Exceptionals

(3,700)

(27,771)

0

(40,915)

(2,950)

(607)

0

0

Share-based payments

(7,623)

(11,493)

(15,465)

(52,641)

(8,277)

(10,000)

(10,000)

(10,000)

Reported operating profit

82,537

49,960

74,975

18,492

116,360

158,789

175,737

191,207

Net Interest

(25,874)

(25,692)

(31,051)

(38,090)

(54,966)

(54,610)

(49,695)

(49,695)

Joint ventures & associates (post tax)

(204)

908

(427)

882

251

0

0

0

Exceptionals

2,029

59

540

(1,333)

14,820

1,938

0

0

Profit Before Tax (norm)

 

 

79,079

73,075

69,062

86,469

76,471

122,787

141,543

155,513

Profit Before Tax (reported)

 

 

58,488

25,235

44,037

(20,049)

76,465

106,118

126,043

141,513

Reported tax

(31,809)

(19,540)

(9,470)

(13,375)

(25,527)

(35,019)

(41,594)

(46,699)

Profit After Tax (norm)

34,615

30,034

36,179

56,205

50,942

82,267

94,834

104,194

Profit After Tax (reported)

26,679

5,695

34,567

(33,424)

50,938

71,099

84,449

94,814

Minority interests

(13,772)

(3,103)

(6,431)

(3,209)

(5,137)

(9,358)

(9,888)

(10,415)

Discontinued operations

1,332

0

5,766

116,967

0

0

0

0

Net income (normalised)

20,843

26,938

29,748

52,996

45,805

72,909

84,946

93,779

Net income (reported)

14,239

2,592

33,902

80,334

45,801

61,741

74,561

84,399

Average number of shares outstanding (m)

210.5

198.8

203.2

218.0

224.8

230.8

232.6

232.6

EPS - diluted normalised (c)

 

 

9.7

13.2

14.2

24.1

19.7

30.5

35.3

38.9

EPS - basic reported (c)

 

 

6.8

1.3

16.7

36.9

20.4

26.8

32.0

36.3

EPS - Company underlying uEPS (c)

 

 

9.9

13.5

16.0

6.1

17.1

27.9

33.6

37.4

Dividend (c)

7.0

6.6

39.3

77.7

7.0

9.3

11.2

12.5

Revenue growth (%)

(2.7)

(2.5)

10.6

13.1

6.1

(2.8)

3.9

3.5

Gross Margin (%)

17.6

16.8

16.1

14.5

15.8

17.0

16.9

16.9

Adj. EBITDA Margin (%)

3.9

3.7

3.5

3.5

3.5

4.4

4.6

4.7

Normalised Operating Margin

2.5

2.4

2.2

2.4

2.4

3.3

3.5

3.6

BALANCE SHEET

Fixed Assets

 

 

512,598

554,690

613,155

610,565

741,075

743,375

746,212

751,001

Intangible Assets

291,279

314,486

320,089

293,184

335,621

333,611

332,047

331,789

Tangible Assets

43,300

39,987

32,517

33,054

35,823

40,134

44,535

49,581

Right-of-use assets

83,953

94,837

80,639

56,248

55,991

55,991

55,991

55,991

Investments & other

94,066

105,380

179,910

228,079

313,640

313,640

313,640

313,640

Current Assets

 

 

2,083,928

2,242,568

2,399,078

3,015,700

2,892,261

2,870,273

2,991,719

3,110,993

Stocks

253,271

242,005

309,227

411,059

324,868

337,835

363,547

389,395

Debtors

1,110,510

1,108,105

1,223,824

1,508,470

1,488,867

1,511,163

1,584,774

1,656,385

Cash & cash equivalents

347,189

488,632

453,926

584,683

569,035

510,836

531,915

552,582

Other

372,958

403,826

412,101

511,488

509,491

510,440

511,483

512,631

Current Liabilities

 

 

(1,765,823)

(1,980,013)

(2,152,175)

(2,869,641)

(2,829,580)

(2,750,361)

(2,800,202)

(2,843,949)

Creditors

(1,275,690)

(1,401,804)

(1,544,198)

(2,088,899)

(2,048,883)

(1,974,129)

(2,018,029)

(2,056,146)

Short term borrowings

(338,945)

(392,877)

(433,176)

(577,224)

(581,233)

(581,233)

(581,233)

(581,233)

Lease liabilities

(34,325)

(36,398)

(32,870)

(27,005)

(26,243)

(26,243)

(26,243)

(26,243)

Other

(116,863)

(148,934)

(141,931)

(176,513)

(173,221)

(168,756)

(174,697)

(180,328)

Long Term Liabilities

 

 

(187,610)

(176,624)

(229,112)

(224,284)

(234,612)

(233,385)

(235,018)

(236,565)

Long term borrowings

(18,638)

(42,371)

(56,440)

(41,624)

(39,138)

(39,138)

(39,138)

(39,138)

Lease liabilities

(95,148)

(77,847)

(61,523)

(45,412)

(45,548)

(45,548)

(45,548)

(45,548)

Other long term liabilities

(73,824)

(56,406)

(111,149)

(137,248)

(149,926)

(148,699)

(150,332)

(151,879)

Net Assets

 

 

643,093

640,621

630,946

532,340

569,144

629,903

702,712

781,480

Minority interests

(70,778)

(57,465)

(67,516)

(60,331)

(67,911)

(77,269)

(87,156)

(97,571)

Shareholders equity

 

 

572,315

583,156

563,430

472,009

501,233

552,634

615,555

683,909

CASH FLOW

Op Cash Flow before WC and tax

169,980

157,888

162,842

191,840

188,816

236,861

252,738

267,799

Working capital

57,231

79,903

(76,807)

(18,203)

29,583

(115,709)

(47,849)

(52,166)

Exceptional & other

19,330

(3,453)

10,677

(231)

(42,829)

382

(1,044)

(1,148)

Tax

(36,941)

(36,597)

(26,282)

(24,182)

(27,108)

(35,019)

(41,594)

(46,699)

Operating cash flow

 

 

209,600

197,741

70,430

149,224

148,462

86,516

162,251

167,787

Capex

(28,036)

(35,145)

(24,841)

(36,669)

(39,511)

(40,924)

(42,400)

(43,942)

Acquisitions/disposals

(9,179)

(3,694)

(16,424)

114,821

(16,849)

(1,403)

0

0

Net interest

(30,972)

(25,745)

(31,265)

(38,596)

(55,465)

(54,610)

(49,695)

(49,695)

Equity financing

(51,683)

(2,808)

(6,150)

(7,725)

6,633

(4,208)

0

0

Dividends

(15,137)

(4,905)

(43,136)

(154,399)

(13,925)

(16,132)

(21,640)

(26,045)

Other

20,019

1,880

(2,034)

(2,914)

(11,957)

(27,438)

(27,438)

(27,438)

Net Cash Flow

94,612

127,324

(53,420)

23,742

17,388

(58,199)

21,079

20,667

Opening net debt/(cash)

 

 

100,753

139,867

60,874

130,096

106,595

123,140

181,339

160,260

FX and non-cash movements

(133,726)

(48,331)

(15,802)

(241)

(33,933)

0

0

0

Closing net debt/(cash)

 

 

139,867

60,874

130,096

106,595

123,140

181,339

160,260

139,593

Source: Datatec, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Datatec and prepared and issued by Edison, in consideration of a fee payable by Datatec. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Datatec and prepared and issued by Edison, in consideration of a fee payable by Datatec. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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