Doesn’t expect to escape crisis unscathed, but so far so good...
ALTHOUGH DIMENSION DATA doesn’t expect to escape the current global financial credit crisis unscathed, there’s no evidence of any impact on the group just yet, despite a 23% revenue exposure to the financial services sector. In fact, its latest results point to a business growing increasingly healthier.
CEO Brett Dawson says Didata aims to emerge even stronger at the end of the current crisis. Key to managing the business over that period will be to focus on areas of strength clients are still happy to spend on – such as its network infrastructure and IP telephony – and watching costs like a hawk.
Dawson says Didata has no specific plans for general cost-cutting. However, if any region or line of business in the 47 countries it operates in shows signs of weakening or underperforming, it could take specific remedial action.
Management’s approach to running the business has shown increasing evidence of maturity not visible in the heady pre-bubble days. It’s such level-headedness that attracted value investor Allan Gray to become one of its biggest shareholders on behalf of its clients.
Writing in a recent note on Didata – Fallen Stars – A contrarian’s hunting ground – Allan Gray fund manager Delphine Govender says while it had held the view back in 2000 that Didata’s earnings were unsustainably high it now feels its current earnings are “below normal”. Didata’s current share price “considerably undervalues what we believe the business is worth”.
Govender highlighted a number of reasons why Didata represents a meaningful holding in its clients’ portfolios, among them its significant scale, management team, payment of dividends since September 2006 and the behaviour of users with regard to IT. “The IT network has become deep-rooted in our lives over the past decade, thanks to mobile telephony and our need to be connected constantly to the Internet.”
She says those material changes combined with other operational and strategic refinements had improved the sustainability of Didata’s business model. However, Allan Gray doesn’t expect Didata’s levels of profitability to return to previous levels. “But in relation to current profitability our base case expectations are for earnings to increase.”
Reporting its full-year results to September 2008, Didata says it achieved operating margins of 4% – up from 3,3% in the previous year. And Dawson says it will maintain its 5% operating margin target to 2011. It hasn’t made any forecasts beyond that.
Didata grew its revenue by 19,5% to US$4,5bn (roughly R46,4bn at US$1/ R10,31) and operating profit by 39,1% to $182,2m (roughly R1,88bn). Earnings per share were 7,7c (around 79,4c) to put the share on a historic multiple of 6,3 times.
Dawson concurs with Allan Gray’s prognosis for the company. “Our business has never been stronger,” he says.
Aims to emerge even stronger. Brett Dawson Represents a meaningful holding. Delphine Govender