Datatec hits two-week high as lower costs offset revenue decline
Shares in technology group Datatec rose just more than 7%, its highest in two weeks, after the company said lower costs offset revenue decline in the four months to June.
Datatec, whose stock has lost 25% of its value so far in 2020, closed at R24.74, giving it a market cap of about R5bn.
The group said though revenue declined in the period, operating costs were “much lower”.
Earnings before interest, taxation, depreciation and amortisation (ebitda) are likely to rise over the period, the group said. Ebitda is a measure of the profitability of a firm’s underlying business, excluding items such as finance costs.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the update is “better than expected”, adding this is likely evidence that the company’s cost management programme is bearing fruit. Datatec’s ebidta performance would usually have been down at this time of the year, he said, and that these results come at the height of Covid-19 lockdown is very positive.
Takaendesa said Datatec has been “sold off quite aggressively” over the last few weeks, and this is likely what prompted the company to issue an update to investors.
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 to sectors of the information and communications technology (ICT) market.
Datatec bought two companies in Europe in 2019 to strengthen its operations in the region. 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.
Though listed on the JSE, Datatec makes less than a tenth of its revenues from SA.
Datatec said in May it had the liquidity and capital to keep its business afloat for the next 12 months but warned of weaker revenues for its 2021 financial year, given the negative effects of Covid-19.
Datatec has $850m (R13.9bn) in total net assets on hand to weather the crisis.
“The economic effects arising from the Covid-19 pandemic may materially affect the consolidated results of the group for the first half and full year,” the company told shareholders at the time. The situation has caused Datatec to put on hold plans to list its Logicalis Latin American business.
The Covid-19 pandemic has affected businesses worldwide, but the group said trading has remained steady since March, though some delays and supply disruptions were experienced, especially in countries with highly restrictive lockdowns.
Update: July 21 2020
This article has been updated with additional information.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.