Datatec — Positive outlook for FY25

Datatec (JSE: DTCJ)

Last close As at 19/07/2024

ZAR35.99

0.48 (1.35%)

Market capitalisation

ZAR8,556m

More on this equity

Research: TMT

Datatec — Positive outlook for FY25

Datatec reported 6% revenue growth in FY24, with the backlog normalising after a period of tightness in the supply chain. Strong performances from Westcon and Logicalis International were partially offset by weaker profitability in Logicalis Latin America, resulting in flat adjusted EBITDA margins year-on-year. Management expects improved financial performance from all divisions in FY25; we forecast year-on-year growth in underlying EPS of 26%.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Datatec

Positive outlook for FY25

FY24 results

Software and comp services

25 June 2024

Price

ZAR37.68

Market cap

ZAR8,627m

ZAR17.96/$

Net debt ($m) at end FY24

123.1

Shares in issue

229.0m

Free float

84%

Code

DTCJ

Primary exchange

JSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.8

(1.5)

1.0

Rel (local)

(0.6)

(10.1)

(6.4)

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

AGM

31 July 2024

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Datatec is a research client of Edison Investment Research Limited

Datatec reported 6% revenue growth in FY24, with the backlog normalising after a period of tightness in the supply chain. Strong performances from Westcon and Logicalis International were partially offset by weaker profitability in Logicalis Latin America, resulting in flat adjusted EBITDA margins year-on-year. Management expects improved financial performance from all divisions in FY25; we forecast year-on-year growth in underlying EPS of 26%.

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

8.7

37.0

02/24

5,458

76.5

19.7

7.0

10.7

3.4

02/25e

5,731

111.3

27.4

8.5

7.7

4.0

02/26e

5,991

127.1

31.6

9.9

6.6

4.7

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

Earnings quality improved in FY24

Datatec reported FY24 revenue growth of 6% y-o-y, adjusted EBITDA growth of 7% and company underlying EPS (uEPS) growth of 230%, as trading performance improved and share-based payments materially declined versus FY23. Divisional performance was mixed; Westcon showed strong revenue and profit growth and Logicalis International grew profit, while net revenue-accounted software sales dampened revenue growth. Logicalis Latin America saw weaker demand from Brazil and Mexico and profitability was hit by unrealised FX losses relating to the devaluation of the Argentine peso. Better-than-expected control of working capital resulted in year-end net debt well below our forecast.

Outlook: Further margin progress expected in FY25

Management confirmed that the group continues to benefit from secular technology growth trends, including strong demand for cyber security and hybrid working, and the adoption of generative artificial intelligence (GenAI). It expects all divisions to deliver improved financial performance in FY25. We have revised our forecasts to reflect FY24 results, with more conservative forecasts for Logicalis Latin America the main driver of reductions to uEPS of 2% in FY25 and 10% in FY26.

Valuation: Working to unlock value

Datatec currently trades on an EV/adjusted EBITDA multiple of 3.0x FY25e and 2.8x FY26e, well below its peer group (c 8x for both years). On a conservative sumof-the-parts (SOTP) valuation using peer group averages, we estimate that Datatec could be worth 88% more than the current share price. Sustained revenue growth in Logicalis Latin America and improving profitability across the group will be key to reducing the discount to peers. Management has introduced new incentive schemes for divisional management focused on ownership at the divisional rather than group level to further drive performance. The ongoing strategic review continues to seek ways to address the persistent valuation gap.

Review of FY24 results

Exhibit 1 summarises the FY24 results.

Exhibit 1: FY24 results highlights

$m

FY24e

FY24

y-o-y growth

Diff

Revenue

5,568

5,458

6%

(2%)

Gross Profit

844

862

16%

2%

Adjusted EBITDA

197

192

7%

(3%)

EBITDA

184

178

81%

(4%)

Normalised operating profit

137

131

6%

(4%)

Normalised profit before tax

87

76

(12%)

(12%)

Normalised net income

48

46

(14%)

(5%)

EPS – diluted normalised (c)

20.8

19.7

(18%)

(5%)

EPS – basic reported (c)

17.3

20.4

(45%)

17%

Headline EPS – basic continuing (c)

17.4

14.2

(232%)

(18%)

Company basic underlying uEPS (c)

21.2

20.2

230%

(5%)

Dividend (c)

7.1

7.0

N/A

(0%)

Revenue growth (%)

8.3

6.1

-7.0pp

-2.1pp

Gross Margin (%)

15.2

15.8

1.3pp

0.6pp

Adjusted EBITDA Margin (%)

3.5

3.5

0.0pp

0.0pp

Normalised Operating Margin (%)

2.5

2.4

0.0pp

-0.1pp

Net debt

205

123

16%

(40)%

Source: Datatec, Edison Investment Research

Datatec reported revenue growth of 6% for FY24, 2% below our forecast. We discuss divisional performance below. Despite lower-than-expected revenue growth, gross profit increased 16% y-o-y and was 2% ahead of our forecast. EBITDA increased 81% y-o-y and was 4% below our forecast. Adjusted EBITDA increased 7% y-o-y, resulting in an unchanged margin of 3.5%. Adjusted EBITDA excludes share-based payments of $8.3m (FY23: $52.6m) and restructuring and other one-off charges totalling $6.2m (FY23: $29.3m). Net finance costs increased from $38.1m in FY23 to $55.0m in FY24, reflecting higher interest rates on higher debt. Reported EPS includes a $14.9m gain relating to the Mason Advisory acquisition (see below), which we had not forecast. Headline EPS from continuing operations, which excludes the post-tax gains and losses from the disposal of fixed assets, increased from -10.8 cents in FY23 to 14.2 cents in FY24. Underlying EPS from continuing operations (adjusts headline EPS by excluding impairment of intangible assets, amortisation of acquired intangibles, unrealised FX movements, 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 230% y-o-y, reflecting a better trading performance and a significantly lower level of share-based payments than in FY23.

Net debt at year-end was $123.1m, up from $106.6m at the end of FY23 but well below our $205.2m forecast due to better-than-expected management of working capital.

The company declared a final dividend of ZAR1.3/US$0.07 for FY24, based on its policy of paying out one-third of underlying EPS. This is available as cash or with a scrip alternative.

Bolt-on acquisitions

In December 2023, the company increased its shareholding in Mason Advisory Limited from 42.5% to 80% for a consideration of $18.2m. It is now accounted for as a subsidiary rather than an associate and this resulted in a fair value adjustment of $14.9m. Mason Advisory is included within the Corporate and Management Consulting division.

In September 2023, Logicalis Latin America acquired 5% of its shares held by Promon for $8.6m and cancelled the shares. This reduced the minority interest in Logicalis Latin America from 35% to 31.58%.

In January 2024, Westcon acquired 100% of Rebura Holdings Limited for $7.6m, of which $6.5m was paid in cash on completion, with the remaining $1.1m due one year after completion subject to certain conditions.

New management incentive schemes

During FY24, the company put in place two new incentive schemes for the management teams of Westcon International and Logicalis International. Post year-end, the company set up a similar scheme for Mason Advisory. Exhibit 2 shows the key features of each scheme. Management will only be able to realise their shareholdings on the sale of the relevant business or similar exit event.

Exhibit 2: Structure of new management incentive schemes

Source: Datatec

Divisional performance

Exhibits 3 and 4 show recurring revenue by division.

Exhibit 3: Recurring revenue and growth by division

Exhibit 4: Recurring revenue share of total revenue

Source: Datatec

Source: Datatec

Exhibit 3: Recurring revenue and growth by division

Source: Datatec

Exhibit 4: Recurring revenue share of total revenue

Source: Datatec

Exhibit 5 summarises divisional revenue and profitability.

Exhibit 5: Divisional performance

$m

FY23

FY24e

FY24

Diff

y-o-y

Revenue

Westcon

3,421

3,728

3,685

(1)%

8%

Logicalis International

1,232

1,299

1,250

(4)%

2%

Logicalis Latin America

491

540

513

(5)%

4%

5,143

5,568

5,458

(2)%

6%

$m

FY23

FY24e

FY24

Diff

y-o-y

FY23

FY24e

FY24

Diff (pp)

y-o-y (pp)

Gross profit

Gross margin

Westcon

329

399

403

1%

23%

9.6%

10.7%

11.0%

0.2

1.3

Logicalis International

306

325

339

4%

11%

24.9%

25.0%

27.1%

2.1

2.2

Logicalis Latin America

110

120

118

(2)%

8%

22.3%

22.3%

23.0%

0.7

0.7

745

844

862

2%

16%

14.5%

15.2%

15.8%

0.6

1.3

EBITDA

EBITDA margin

Westcon

48

111

121

9%

150%

1.4%

3.0%

3.3%

0.3

1.9

Logicalis International

50

68

67

(2)%

32%

4.1%

5.2%

5.3%

0.1

1.2

Logicalis Latin America

21

27

12

(57)%

(46)%

4.3%

5.0%

2.2%

(2.7)

(2.1)

Central costs

(22)

(22)

(21)

(1)%

(2)%

98

184

178

(4)%

81%

1.9%

3.3%

3.3%

(0.1)

1.3

Adjusted EBITDA

Adjusted EBITDA margin

Westcon

95

114

120

5%

26%

2.8%

3.1%

3.3%

0.2

0.5

Logicalis International

66

71

74

4%

12%

5.4%

5.5%

5.9%

0.4

0.5

Logicalis Latin America

25

27

13

(54)%

(49)%

5.1%

5.1%

2.5%

(2.6)

(2.6)

Central costs

(6)

(16)

(15)

(3)%

146%

180

197

192

(3)%

7%

3.5%

3.5%

3.5%

0.0

0.0

Source: Datatec, Edison Investment Research

Westcon: Strong revenue and margin progression

Westcon reported revenue growth of 7.7% for FY24 (H124: +14.9% y-o-y; H224: +1.3%), with revenue slightly below our forecast. Revenues grew in every region as supply chain constraints eased and hardware availability improved, and the business worked its way through the backlog that had developed over previous years (Exhibit 6). Recurring revenue grew 24% y-o-y to 44% of total revenue, reflecting stronger growth in software sales. The business saw strong demand for cyber security, which grew 16% y-o-y to 42% of revenue (Exhibit 7). Software grew as a proportion of revenue, from 38% in FY23 to 43% in FY24 (Exhibit 8).

Gross profit grew 23% y-o-y and the gross margin expanded 1.3pp to 11.0%, helped by more stable exchange rates than in FY23. Adjusted EBITDA grew 26% y-o-y and was 5% ahead of our forecast, with the adjusted EBITDA margin expanding 0.5pp to 3.3%.

Exhibit 6: Westcon backlog progression H122-H224

Source: Datatec

Exhibit 7: Revenue by technology

Exhibit 8: Revenue by segment

Source: Datatec

Source: Datatec

Exhibit 7: Revenue by technology

Source: Datatec

Exhibit 8: Revenue by segment

Source: Datatec

We have previously written about the extended payment terms offered by Cisco in recognition of the delays to delivery caused by supply chain constraints. These terms have now been reversed, which was the main reason for the $21m increase in Westcon net debt in FY24 to $88.9m. Partially offsetting this, the business saw an inventory reduction and faster inventory turns (from 8.8x in FY23 to 9.6x in FY24).

Logicalis International (LI): Strong margin growth

LI grew revenue 1.5% y-o-y in FY24 (0.9% in constant currency) with 12.1% y-o-y growth in H124 and a 7.8% decline in H224. Recurring revenue increased 2% y-o-y to make up 38% of revenue. An increase in net revenue-accounted software sales, mainly in North America, dampened reported revenue growth, with North American revenue down 8% y-o-y, EMEA revenue up 11% and Asia-Pacific revenue flat, and software declining from 15% to 13% of sales. As for Westcon, the backlog continued to unwind (Exhibit 9) as delivery lead times have become more predictable. Asia-Pacific backlog often relates to long-term infrastructure-related projects and it can take longer to ship. Cloud revenue increased 53% y-o-y, making up 27% of revenue compared to 18% in FY23.

Gross profit increased 11% y-o-y with gross margin expanding 2.2pp to 27.1%, helped by the increased contribution from annuity services. Adjusted EBITDA increased 12% y-o-y with the adjusted EBITDA margin increasing 0.5pp to 5.9%. Adjusted EBITDA excluded share-based payments of $2.4m (FY23: $0.4m) and one-off tax items and M&A integration costs of $5.2m (FY23: $15.1m). Management noted that EBITDA growth was driven by strong performances in the US, the Asia-Pacific region and Spain, whereas the UK was at break-even and South Africa was lossmaking.

Exhibit 9: Logical International backlog, H122–H224

Source: Datatec

The absolute level of inventory declined and days of inventory outstanding reduced from 14 in FY23 to 11 in FY24. Net working capital was reduced by $38m year-on-year, helping lower divisional net debt by $8.7m to $79.3m.

Logicalis Latin America: Tough trading environment

Logicalis Latin America grew revenue 4.5% in FY24 (15.7% in constant currency) with 20.2% y-o-y growth in H124 and an 8.2% decline in H224. Revenue was 5% below our forecast due to lower-than-expected demand from Brazil and Mexico, with revenue from Brazil down 2% y-o-y, northern Latin America up 9% and southern Latin America up by 14%, despite the difficult economic situation in Argentina. The product backlog continued to reduce (Exhibit 11), although Brazil is taking longer than other countries to unwind. Recurring revenue declined by 7% y-o-y to 44% of revenue (FY23: 49%) mainly due to the reduction in scope or cancellation of some annuity contracts, particularly in Brazil. Cloud revenue increased 1% y-o-y making up 18% of revenue.

Exhibit 10: Revenue and growth by geography

Exhibit 11: Backlog progression, H122–H224

Source: Datatec Note: NOLA = North of Latin America, SOLA = South of Latin America.

Exhibit 10: Revenue and growth by geography

Exhibit 11: Backlog progression, H122–H224

Source: Datatec Note: NOLA = North of Latin America, SOLA = South of Latin America.

Gross profit increased 8% y-o-y and the gross margin increased 0.7pp to 23.0%, helped by professional services and better product margins. Adjusted EBITDA declined by 49% y-o-y and was 54% below our forecast. Adjusted EBITDA includes a large proportion of the group’s $15.9m unrealised FX losses (which relate to the devaluation of the Argentine peso vs the US dollar) and excludes share-based payments of $0.3m (FY23: $0.5m) and restructuring and other one-off charges totalling $0.7m (FY23: $3.2m). The business saw a $30m improvement from net debt of $25.2m at the end of FY23 to net cash of $5.2m at the end of FY24, helped by an improvement in net working capital days resulting from higher days’ purchases outstanding (FY24: 166 days, vs FY23: 147 days) and lower days’ sales outstanding (FY24: 56 days, vs FY23: 65 days).

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.

Management confirmed that it maintains its mid-term adjusted EBITDA margin targets. For Westcon, it is targeting a margin of 3.5–4.0% and, as it achieved a margin of 3.3% in FY24, management believes there is scope to exceed 4.0% in the medium term.

For both Logicalis businesses, it believes that the mid-term margin should be in the range of 6–7%. Logicalis International is very close to the bottom of the range at 5.9% in FY24. Logicalis Latin America’s profitability clearly declined significantly in FY24 to 2.5%, but achieved 5.1% in FY23 and 5.3% in FY22. Management noted that interest rates have been declining in Brazil (from 13.75% in July 2023 to 10.75% currently), which could help stimulate demand. In Argentina, the new government is working to stabilise the economy and currency controls have been relaxed somewhat, allowing Argentina operations to start paying their dollar-based suppliers.

We have revised our forecasts to reflect FY24 results and introduce forecasts for FY27.

Westcon and Logicalis International: we have trimmed our revenue forecasts for FY25 and FY26 and slightly increased our EBITDA/adjusted EBITDA forecasts for FY25 reflecting FY24 performance. On lower revenue in FY26, we slightly reduce our EBITDA/adjusted EBITDA forecasts.

Logicalis Latin America: we have reduced our revenue forecasts from the lower base in FY24. We assume that the worst of the currency losses relating to the devaluation of the peso were incurred in FY24 and we forecast improving profitability in FY2527.

Corporate and Management Consulting: we have factored in the consolidation of Mason Advisory, which we estimate will contribute EBITDA of $5.5m in FY25.

Overall, our adjusted EBITDA forecasts increase marginally in FY25 but are 4% lower in FY26. Factoring in higher net debt as working capital requirements increase, we have increased net finance costs and reduced the tax rate slightly from 35% to 33%, resulting in uEPS 2% lower than our previous forecast in FY25 and 10% lower in FY26. This flows through to the dividend, which is based on one-third of uEPS.

Exhibit 12: Changes to forecasts

$m

FY25e

FY25e

y-o-y

FY26e

FY26e

y-o-y

FY27e

y-o-y

Old

New

growth

Change

Old

New

growth

Change

New

growth

Revenue

5,833

5,731

5%

(2)%

6,111

5,991

5%

(2)%

6,264

5%

Gross Profit

893

909

5%

2%

944

947

4%

0%

987

4%

Adjusted EBITDA

222

224

17%

1%

250

240

7%

(4)%

257

7%

EBITDA

213

214

20%

0%

241

230

7%

(5)%

247

7%

Normalised operating profit

162

164

25%

1%

188

178

9%

(5)%

194

9%

Profit before tax (normalised)

112.1

111.3

46%

(1)%

138

127

14%

(8)%

142

12%

Net income (normalised)

64.4

65.0

42%

1%

80

75

15%

(7)%

84

13%

EPS - diluted normalised (c)

27.6

27.4

39%

(1)%

34.5

31.6

15%

(8)%

35.6

13%

EPS - basic reported (c)

25.4

24.1

18%

(5)%

32.8

28.7

19%

(13)%

33.1

16%

Headline EPS - basic continuing (c)

25.4

24.1

69%

(5)%

32.8

28.7

19%

(13)%

33.1

16%

Company basic underlying uEPS (c)

26.0

25.4

26%

(2)%

33.2

29.7

17%

(10)%

33.9

14%

Dividend (c)

8.7

8.5

11.1

9.9

11.3

Revenue growth (%)

4.8

5.0

(1.1)pp

0.2pp

4.8

4.6

(0.4)pp

(0.2)pp

4.6

Gross Margin (%)

15.3

15.9

0.1pp

0.5pp

15.5

15.8

0.0pp

0.4pp

15.8

0.0pp

Adj. EBITDA Margin (%)

3.8

3.9

0.4pp

0.1pp

4.1

4.0

0.1pp

(0.1)pp

4.1

0.1pp

Normalised Operating Margin

2.8

2.9

0.5pp

0.1pp

3.1

3.0

0.1pp

(0.1)pp

3.1

0.1pp

Operating cash flow

160

54

159

164

172

Net debt

175

207

68%

18%

151

183

(11)%

21%

157

(14)%

Revenue

Westcon

3,915

3,869

5%

(1)%

4,111

4,063

5%

(1)%

4,266

5%

Logicalis

1,918

1,821

3%

(5)%

2,001

1,886

4%

(6)%

1,954

4%

Logicalis International

1,351

1,288

3%

(5)%

1,405

1,326

3%

(6)%

1,366

3%

Logicalis Latin America

567

533

4%

(6)%

596

560

5%

(6)%

588

5%

Corporate & Management Consulting

-

40

N/A

N/A

-

42

N/A

N/A

44

N/A

Total

5,833

5,731

5%

(2)%

6,111

5,991

5%

(2)%

6,264

5%

EBITDA

Westcon

128.2

132.3

9%

3%

144.9

140.4

6%

(3)%

148.9

6%

Logicalis

106.0

97.7

25%

(8)%

117.7

105.8

8%

(10)%

114.3

8%

Logicalis International

75.5

76.7

15%

1%

83.3

81.7

7%

(2)%

86.9

6%

Logicalis Latin America

30.5

21.0

82%

(31)%

34.4

24.1

15%

(30)%

27.4

14%

Corporate & Management Consulting

(21.2)

(16.1)

-25%

(24)%

(21.8)

(16.2)

1%

(25)%

(16.4)

1%

Total

213.0

213.9

20%

0%

240.8

229.9

7%

(5)%

246.9

7%

Adjusted EBITDA

Westcon

130.2

134.3

12%

3%

146.9

142.4

6%

(3%

150.9

6%

Logicalis

108.2

100.4

16%

(7)%

119.9

108.5

8%

(9)%

117.1

8%

Logicalis International

77.2

79.1

7%

2%

85.0

84.1

6%

(1)%

89.3

6%

Logicalis Latin America

31.0

21.4

70%

(31)%

34.9

24.4

14%

(30)%

27.7

13%

Corporate & Management Consulting

(16.4)

(10.8)

-28%

(34)%

(16.9)

(11.0)

1%

(35)%

(11.1)

1%

Total

222.0

223.9

17%

1%

249.8

239.9

7%

(4)%

256.9

7%

Adjusted EBITDA margin

Westcon

3.3%

3.5%

0.2pp

0.1pp

3.6%

3.5%

0.0pp

(0.1)pp

3.5%

0.0pp

Logicalis International

5.7%

6.1%

0.2pp

0.4pp

6.0%

6.3%

0.2pp

0.3pp

6.5%

0.2pp

Logicalis Latin America

5.5%

4.0%

1.5pp

(1.5)pp

5.9%

4.4%

0.4pp

(1.5)pp

4.7%

0.4pp

Source: Edison Investment Research

Valuation

On a group basis, Datatec is valued on a minority-adjusted EV/adjusted EBITDA multiple of 3.0x FY25e and 2.8x FY26e and on a normalised P/E basis of 7.7x FY25e and 6.6x FY26. To more accurately reflect the dynamics of the different divisions, we continue to value Datatec on a SOTP basis. We have rolled forward our forecasts by one year. We note that peer multiples are broadly unchanged since we last published our valuation in November 2023 and we have adjusted our minority interest percentages to reflect the new management incentive schemes and the buy-back of a small amount of minority interest in Logicalis Latin America.

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 ZAR70.46. This implies 88% upside from the current share price.

Exhibit 13: Sum-of-the-parts valuation

 $m

Revenues

Adjusted EBITDA

FY25e

FY26e

FY25e

FY26e

Logicalis International

1,288

1,326

79

84

Logicalis Latin America

533

560

21

24

Westcon

3,869

4,063

134

142

Mason Advisory and central costs

(11)

(11)

Peer multiples (x) 

Revenues

EBITDA

FY25e

FY26e

FY25e

FY26e

Logicalis International

0.8

0.8

9.5

8.7

Logicalis Latin America

0.5

0.4

5.0

4.5

Westcon

0.4

0.4

9.1

8.4

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

1,094

1,058

749

734

92%

678

Logicalis Latin America

283

246

107

110

68%

74

Westcon

1,740

1,713

1,099

1,072

90%

974

Mason Advisory and central costs

(87)

(88)

100%

(87)

Group EV

1,640

Assumed average net debt

(357)

SOTP – Equity value

1,283

Discount for: RSA sovereign risk, holding company risk

30%

Adjusted equity value

898

Shares in issue (m)

228.9

SOTP value per share (US$)

3.92

SOTP value per share (ZAR)

70.46

Latest share price (ZAR)

37.68

Upside from latest share price

88%

Source: Edison Investment Research, LSEG (as at 18 June)

Through the ongoing strategic review, management has started to unlock some of this value with the sale of Analysys Mason and the subsequent return of cash to shareholders. We believe further transactions may take place in the medium term when market conditions start to improve. In the meantime, the company continues to work on operational improvements across the three divisions.


Exhibit 14: Financial summary

Year end 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

5,730,593

5,991,369

6,264,410

Cost of Sales

(3,472,843)

(3,418,939)

(3,816,630)

(4,398,618)

(4,595,711)

(4,821,980)

(5,044,299)

(5,277,170)

Gross Profit

741,578

690,524

729,768

744,507

862,236

908,614

947,070

987,240

Adjusted EBITDA

 

 

166,280

152,490

158,922

180,182

192,085

223,900

239,938

256,874

EBITDA

158,657

118,619

143,457

98,246

177,589

213,900

229,938

246,874

Normalised operating profit

 

 

105,157

97,859

100,540

123,677

131,186

164,436

178,437

194,282

Amortisation of acquired intangibles

(11,297)

(8,635)

(10,100)

(11,629)

(3,599)

(4,800)

(3,800)

(2,800)

Exceptionals

(3,700)

(27,771)

0

(40,915)

(2,950)

0

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

149,636

164,637

181,482

Net Interest

(25,874)

(25,692)

(31,051)

(38,090)

(54,966)

(53,128)

(51,382)

(51,945)

Joint ventures & associates (post tax)

(204)

908

(427)

882

251

0

0

0

Exceptionals

2,029

59

540

(1,333)

14,820

0

0

0

Profit Before Tax (norm)

 

 

79,079

73,075

69,062

86,469

76,471

111,308

127,055

142,337

Profit Before Tax (reported)

 

 

58,488

25,235

44,037

(20,049)

76,465

96,508

113,255

129,537

Reported tax

(31,809)

(19,540)

(9,470)

(13,375)

(25,527)

(31,848)

(37,374)

(42,747)

Profit After Tax (norm)

34,615

30,034

36,179

56,205

50,942

74,576

85,127

95,366

Profit After Tax (reported)

26,679

5,695

34,567

(33,424)

50,938

64,660

75,881

86,790

Minority interests

(13,772)

(3,103)

(6,431)

(3,209)

(5,137)

(9,571)

(10,264)

(10,996)

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

65,005

74,863

84,370

Net income (reported)

14,239

2,592

33,902

80,334

45,801

55,089

65,617

75,794

Average number of shares outstanding (m)

210.5

198.8

203.2

218.0

224.8

228.9

228.9

228.9

EPS - diluted normalised (c)

 

 

9.7

13.2

14.2

24.1

19.7

27.4

31.6

35.6

EPS - basic reported (c)

 

 

6.8

1.3

16.7

36.9

20.4

24.1

28.7

33.1

EPS - Company underlying (c)

 

 

9.9

13.5

16.0

6.1

20.2

25.4

29.7

33.9

Dividend (c)

7.0

6.6

39.3

77.7

7.0

8.5

9.9

11.3

Revenue growth (%)

(2.7)

(2.5)

10.6

13.1

6.1

5.0

4.6

4.6

Gross Margin (%)

17.6

16.8

16.1

14.5

15.8

15.9

15.8

15.8

Adj EBITDA Margin (%)

3.9

3.7

3.5

3.5

3.5

3.9

4.0

4.1

Normalised Operating Margin (%)

2.5

2.4

2.2

2.4

2.4

2.9

3.0

3.1

BALANCE SHEET

Fixed Assets

 

 

512,598

554,690

613,155

610,565

741,075

745,172

749,709

755,698

Intangible Assets

291,279

314,486

320,089

293,184

335,621

335,408

335,544

336,486

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

2,924,957

3,036,434

3,154,368

Stocks

253,271

242,005

309,227

411,059

324,868

340,863

356,578

373,040

Debtors

1,110,510

1,108,105

1,223,824

1,508,470

1,488,867

1,563,242

1,634,379

1,708,861

Cash & cash equivalents

347,189

488,632

453,926

584,683

569,035

510,412

533,994

559,836

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)

(2,805,677)

(2,853,141)

(2,900,798)

Creditors

(1,275,690)

(1,401,804)

(1,544,198)

(2,088,899)

(2,048,883)

(1,992,092)

(2,032,012)

(2,071,770)

Short term borrowings

(338,945)

(392,877)

(433,176)

(577,224)

(581,233)

(606,233)

(606,233)

(606,233)

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)

(181,109)

(188,653)

(196,552)

Long Term Liabilities

 

 

(187,610)

(176,624)

(229,112)

(224,284)

(234,612)

(236,779)

(238,852)

(241,023)

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)

(152,093)

(154,166)

(156,337)

Net Assets

 

 

643,093

640,621

630,946

532,340

569,144

627,672

694,150

768,244

Minority interests

(70,778)

(57,465)

(67,516)

(60,331)

(67,911)

(77,482)

(87,746)

(98,742)

Shareholders’ equity

 

 

572,315

583,156

563,430

472,009

501,233

550,190

606,404

669,503

CASH FLOW

Op Cash Flow before WC and tax

169,980

157,888

162,842

191,840

188,816

223,900

239,938

256,874

Working capital

57,231

79,903

(76,807)

(18,203)

29,583

(137,105)

(37,315)

(41,116)

Exceptional & other

19,330

(3,453)

10,677

(231)

(42,829)

(949)

(1,044)

(1,148)

Tax

(36,941)

(36,597)

(26,282)

(24,182)

(27,108)

(31,848)

(37,374)

(42,747)

Operating cash flow

 

 

209,600

197,741

70,430

149,224

148,462

53,999

164,205

171,862

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)

0

0

0

Net interest

(30,972)

(25,745)

(31,265)

(38,596)

(55,465)

(53,128)

(51,382)

(51,945)

Equity financing

(51,683)

(2,808)

(6,150)

(7,725)

6,633

0

0

0

Dividends

(15,137)

(4,905)

(43,136)

(154,399)

(13,925)

(16,132)

(19,403)

(22,696)

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

(83,623)

23,582

25,842

Opening net debt/(cash)

 

 

100,753

139,867

60,874

130,096

106,595

123,140

206,763

183,181

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

206,763

183,181

157,339

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

Australia

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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.

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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.

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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

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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