Hardware and services — a circus act for survival
Though companies in the technology sector are prone to wild upswings and sudden dips, such an accusation cannot be made against Datacentrix. Over the years it has made a habit of making steady progress.
This in itself is remarkable, given the rapid changes in the tech space. One minute a new device is the must-have for every business; the next moment it has been replaced by something new.
With this kind of change, technology companies in effect have to be like a cowboy who has to straddle two horses at the same time.
One foot is on a horse that represents its existing businesses
while the other is on the horse that represents what it wants to do in the future.
A few years ago Datacentrix sensed that it needed to go through such a transition. It started out selling computers but when everyone was doing the same it started offering IT services like cloud computing.
Looking at its performance over the past few years, this shift has paid off.
Though its numbers have not been spectacular, the move to services has given it a more than adequate revenue stream.
Its latest set of numbers, however, shows a company that is taking some strain from a soft economy but also demonstrating some resilience. Though revenue was flat at R2,24bn, operating profit had increased almost 15% to R143,8m for the 12 months to end February.
It has no debt to speak of, cash from operating activity rose from R142m to R199m and it has cash and cash equivalent of R291,4m, up from R202,5m.
Its move into offering services can be seen in its managed services now making up 45% of earnings, up from 19% in 2010. Though services have made a healthy contribution to the bottom line, they present challenges: the group had to invest heavily in creating and maintaining new skill sets.
It is also vulnerable to customer companies wanting to bring IT services back in-house.
This is exactly what happened, which is why Datacentrix’s managed services earnings were flat for the year.
Business solutions, its other IT service-orientated business division, fared better. Earnings rose 10% to R10,8m.
The group’s shift to offering services has paid off over the past few years but it was the hardware reselling division which was a significant driver of earnings growth for this period.
Earnings were not only up 38% to R45,5m, margins rose from 2,9% to 4,1%.
Though the move into IT services has not come without challenges, Datacentrix’s efforts have been recognised. Research group Frost & Sullivan awarded it the 2015 Southern African IT Systems Integration Competitive Strategy Innovation & Leadership Award.
Judging by its performance over the past few years, the group looks well placed to continue on its steady growth trajectory.
Even so, investors have been cautious. Though its share price has risen about 24% over the past year to R4,70, it is on a PE ratio of only 8,68.
And when compared over the past three and five years, the share price has risen only 9,3% and 17,5% respectively and is still far from its high of R59 in January 2011.
Its share price might not be a stellar performer but there are other reasons to like it. For one, it has a respectable return on equity of 16,9% and a decent dividend yield of 3,82%.
The group’s recent performance suggests that it will not be shooting out the lights when it comes to earnings, but investors looking for a steady performer which pays out regular dividends could do worse than Datacentrix.