Datatec turns $29m loss into $6.6m profit as key division delivers

DATATEC has turned from a $29.4 million (R417.48m) loss to a profit of $6.6m in the six months to end August on the back of a strong performance from one of its key divisions.

Chief executive Jens Montanana said the reversal was beyond the company’s expectations, with earnings before interest, tax, depreciation (Ebitda) improving to $42.6m compared to $7.7m during the corresponding period last year.

Montanana said revenue increased 8.7 percent to $2 billion from $1.84bn, while underlying earnings per share was 3.6 US cents from an underlying loss per share of 8.7 US cents.

He said the performance was backed by improved operational execution across all divisions.

“Logicalis performed well in the first half and produced good results despite emerging market currency headwinds, especially in its key Latin America region,” Montanana said.

“Westcon International’s recovery is under way and we are delivering on our commitments for this division with the enterprise resource planning system now stable, the business process outsourcing reversal almost complete and central cost reductions on track,” he said.

The logistics division increased its revenue 14.4 percent contributing 39 percent to the group’s overall revenue with Ebitda up by 37.2 percent, supported by a significant multi-year project in Latin America.

Westcon International, which is 90 percent owned by the group, brought in 60 percent.

Last year Datatec sold Westcon Latin Americas for $800m and 10 percent of Westcon International for $30m to Synnex Corporation.

The consulting and financial services division contributed 1 percent to the group’s revenue.

The group did not declare a dividend during the period.

Montanana said the group expected the improved operational and financial performance to continue for the remainder of the year.

“We are addressing the valuation gap through improved execution at Westcon International and the ongoing share buy-back programme,” he said. “We continue to pursue small acquisitions that enhance Logicalis’ positioning in the long term.”

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the results showed continuing strong growth in their IT services business Logicalis as well as some recovery in the technology distribution business Westcon.

Takaendesa said Westcon was, however, still not profitable, but could improve as it had restructured the remaining operations post selling the Americas division of the business.

He said with Logicalis continuing to deliver strong growth and management guiding that Westcon would become profitable from early 2019, they expect earnings to continue to recover strongly from this level.

“The company still has about R800m cash allocated to buying back its own shares and there is potential to receive an additional $33m on from Synnex as part of the agreed earnout payment when they sold Westcon Americas to Synnex,” Takaendesa said.

Datatec shares declined 0.21 percent on the JSE yesterday to close at R23.95.