Datatec weathers supply chain storm

Technology group Datatec, which has just announced a R2.7bn special dividend, expects strong demand for its software and services in networking, cybersecurity and cloud infrastructure in the second half of its financial year.

However, the group is still struggling to meet some of this demand, particularly for hardware, from its international operations, owing to supply chain issues contributing to its growing backlog of orders.

Having evolved for 35 years, Datatec, operating in more than 50 countries, has two main divisions: Logicalis and Westcon International, which distributes security and networking technology products. Valued at R9.14bn, Datatec is one of the JSE’s largest information and communications technology (ICT) services firms.

“Order intake remains strong which is a positive forward-looking indicator,” the group said in its interim results announcement for the 2023 financial year on Thursday.

For the six months to end-August, open, unfulfilled sales orders were at about $1.4bn (R25.86bn) up from $838m in the previous matching period.

This issue has been felt worst in the group’s business in South America. So much so that it now reports this segment’s earnings separately.

“Logicalis is now managed in two segments, Logicalis International and Logicalis Latin America, to align better with the group’s strategy and provide operational flexibility. Logicalis International had a steady performance while Latin America, as expected, continued to be negatively impacted by weak regional economic conditions compounded by supply chain constraints,” said Datatec CEO Jens Montanana.

Logicalis Latin America’s interim revenue fell 21.3% to $218.8m. Earnings before interest, tax, depreciation and amortisation (Ebitda) showed a $1m loss compared with a profit of $18.1m in the previous matching period.

Despite these setbacks, the group’s combined revenue for the period was $2.45bn, up 8.7%. 

Group Ebitda was $63.4m, down from $75m previously, while headline earnings per share were 4.7 US cents compared with 6.3 previously. 

Datatec said there is strong demand for its software and services in networking, cybersecurity and cloud infrastructure and its operations are receiving significant international recognition with key vendor awards.

“While the global supply chain constraints continue to impact deliveries, resulting in further increases in backlog, there are early signs of improvement coming through,” said the company. 

While globally the industry is facing a slowdown in ICT spending after Russia’s invasion of Ukraine knocked confidence, Datatec has fared worse than companies such as Bytes Technology and Adapt IT — whose main business is software — which can continue to deliver products and services to corporate clients, for the most part unhindered.

The downturn did not stop the group declaring a special dividend of R12.50 per share or £135m (R2.697bn) in total following the recent sale of its consulting unit, Analysys Mason, for £210m to UK fund manager Bridgepoint Development Capital.

Montanana has been fighting to regain much of the value Datatec has lost over the years. Much of these losses have been attributed to the firm’s international operations — the bulk of its business — which struggled to be profitable over the past decade, resulting in a series of corporate actions to slim down the group.

To deal with its valuation gap, the group recently assembled a team from Lazard, known as the world’s largest independent investment bank, to seek  ways to unlock value. The company said it is considering all options. A few on the table include listing Logicalis and Westcon International separately or selling to a larger group.

Datatec’s share price, up 8.5% so far in 2022, was 1.72% weaker on Thursday at R41.77. 

gavazam@businesslive.co.za