Datatec set to boomerang

Finweek English Edition - - INSIDE - BY MOXIMA GAMA

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.

POS­SI­BLE SCE­NARIO:

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.

AL­TER­NA­TIVE SCE­NARIO:

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.

SOURCE: Bloomberg.com

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