Datatec set to boomerang
After the Y2K bubble burst in the year 2000, Datatec plummeted from 14 600c/ share to 1650c/share in a year. But following a lengthy consolidation of more than a decade, it is regaining sturdy upside and looks set to complete a 100% retracement to its alltime high. Datatec is now the largest technology share on the local bourse, after Dimension Data delisted from the JSE – making it a compelling prospect for local investors looking for a solid i nformation a nd communication technology (ICT) play.
With the majority of its earnings coming from operations in the US and Europe, the group has established itself as a true international player. As a provider of ICT products, solutions and services, Datatec operates in over 50 countries, in three principal areas of the ICT industry: technology, integration and consulting through its three respective divisions.
The g r oup i s genera ll y wel l - diversified, with broad-based offerings and good geographic positioning. Its presence in both developed and developing markets means that it is insulated against a downturn in any single region. For many years Datatec has employed an aggressive acquisition strategy that has propelled it into a good global position. To mention a few: in 2012, it agreed to acquire Australian IT group Corpnet; in 2013, it bought the European businesses of 2e2 for € 24m (R315m) in cash and in February last year, it acquired 100% of the issued share capital of German technology firm Inforsacom. In its solution and service department, Datatec recently bought US cloud platform Verecloud for $12m (R148m) through its company Westcon.
With all t hese acquisitions and new offerings, Datatec is somewhat enticing, especially because there’s still room for further upside in the long term. Also, for a South African investor, Datatec presents the opportunity to invest in what is effectively an international company without taking any money offshore.
The group generates only a tiny fraction of its profits from SA, making it effective as a rand hedge – Weston is Datatec’s largest revenue earner and is based in the US. With worldwide technology growing rapidly every year, Datatec’s drive to improve its competitive position makes a good short-, mediumand long-term investment.
Datatec escaped a 12-year consolidation last year, and current upside marks the start of the ascending phase of a huge bottoming-up pattern, which should see Datatec boomerang to its all-time high at 14 600c/share in one to two years. It is encountering resistance at 6 140c/ share, but with the relative strength index (RSI) breaching its resistance trendline, upside above that level seems imminent – thereby presenting a good buying opportunity, despite its monthly overbought position.
Downside below 4 495c/share would end the current uptrend. Breaching the 3 030c/share level would place emphasis back on the black bold trendline – where Datatec should hold.