Datatec expects interim headline earnings to double

A turnaround at Datatec’s subsidiary Westcon is likely to be the wind in the sails of a company that was once a darling of the JSE.

Datatec said on Thursday headline earnings per share (heps) for the six months to August could more than double, as it continues to benefit from a turnaround strategy in its underperforming Westcon business.

The once loss-making technology distributor, Westcon International has undergone a shake-up, terminating its business process outsourcing in Europe, Middle East and Africa, and Asia-Pacific. Datatec has said the outsourcing is costly and negatively affected customer service and financial performance.

Aslam Dalvi, a portfolio manager at Kagiso Asset Management said “the successful reshaping of Westcon International into a profitable business will continue to be a key driver of growth and also opens up opportunities for significant value unlock through future corporate action.”

Datatec expects interim heps to rise to a range of US2c and 2.5c, from 0.7c previously, the company said in a statement.

Dalvi said the trading update “highlighted a solid underlying performance and further progress in the reshaping of Westcon International and a further reduction in central costs.”

Datatec said it achieved “a solid” operational performance in the first half of its 2020 financial year “despite economic and currency headwinds”.

“All of the group’s divisions delivered strong results, with the reshaping of Westcon International and associated central cost reductions proceeding according to plan,” the group said.  

Datatec has in its 2019 latest annual report said its Westcon turnaround, which was conducted in 2019, was expected to lead to significant further improvements, as well as further cost reductions.

Westcon SA made $98.8m (R1.47bn) in revenue for the financial year to end February 2019, marginally down from $102.6m in the previous year.

“While it is still early days in terms of the turnaround plan, the progress to date, notwithstanding certain economic and currency headwinds in regions such as Latin America, is positive” said Dalvi.

The company operates in more than 50 countries across North America, Latin America, Europe, Africa, Middle East and Asia-Pacific, offering technology, distribution, integration and consulting sectors of the information and communications technology (ICT) market.

In September, its subsidiary, Logicalis, bought a 70% interest in Cilnet, a Cisco Systems integrator and managed services business in Portugal, and Orange Networks, a Microsoft services business, in Germany.

In the 2018 financial year, Datatec completed the sale of Westcon Americas and a division of Logicalis, earning $672m from these transactions.

Datatec’s share had closed at R33.09 on Wednesday, having risen 20.94% so far in 2019.

gernetzkyk@businesslive.co.za