Datatec — Operational gearing drives EPS growth

Datatec (JSE: DTCJ)

Last close As at 12/12/2024

ZAR44.34

−0.61 (−1.36%)

Market capitalisation

ZAR10,617m

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Research: TMT

Datatec — Operational gearing drives EPS growth

H122 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. 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.

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Written by

TMT

Datatec

Operational gearing drives EPS growth

H122 trading update

IT services

6 October 2021

Price

ZAR38.0

Market cap

ZAR7.7bn

ZAR15.04/US$

Net debt (US$m) at 28 February 2021

60.9

Shares in issue

203.2m

Free float

62%

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 (IT services) and Analysys Mason (consulting).

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

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.

Year end

Revenue
(US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

02/20

4,214

79.1

9.9

7.00

25.5

2.8

02/21

4,109

73.1

13.6

7.06

18.6

2.6

02/22e

4,317

79.1

16.5

5.50

15.3

2.2

02/23e

4,548

101.6

24.9

8.28

10.2

3.3

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

H122 uEPS is expected to be between 8.0 and 8.5 US cents (H121: 3.9 US cents), with headline EPS and statutory EPS both expected to be between 6.1 and 6.4 US cents (H121: 1.6 US cents). H122 uEPS is therefore anticipated to be more than 100% above H121 uEPS, with headline and statutory EPS 300% above H121 comparators. H121 uEPS (3.9 US cents) was 29% of FY21 uEPS (13.6 US cents).

Given Datatec’s February year end, the H121 comparator period, starting 1 March 2021, coincided neatly with the onset of the COVID-19 pandemic, providing a relatively weak performance comparator.

Management provided no update on the strategic review announced in August (discussed in our note Strategic review to unlock embedded value). We expect to see an update with the H122 results.

We will look for any management comments relating to H222 progress and review our estimates after the full H122 results release, due on or around 28 October 2021.

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