Shares in ICT group Datatec slid on Tuesday as the group reported it is struggling to meet client orders due to difficulties in securing hardware stock, an issue likely to affect its performance in 2022.
Like other firms in the sector, Datatec has reported benefits from the pandemic-era remote working trend, which has forced many companies to rethink their digital infrastructure requirements.
Even though the industry is facing a slowdown in IT spending after Russia’s invasion of Ukraine knocked confidence, Datatec said it is unable to fulfil some orders due to continued pressure on global supply chains.
While players such as Bytes Technology — whose main business is software — can continue to deliver products and services to corporate clients, unhindered for the most part, Datatec is battling with its hardware components.
For example, a number of Cisco systems that Datatec supplies to its clients run on specific hardware made by the US tech giant. Problems with getting stock of such hardware mean Datatec is unable to fully deliver on certain projects or orders.
Its book of unfinished orders for the year to end-February more than doubled, compared to the prior period.
“While we see continued demand for our products and services across the world, and have positioned our operations to take full advantage of this, the supply chain headwinds compounded by various factors, including the war in Ukraine, lockdowns in China and global inflationary pressures, will impact our performance in 2023,” CEO Jens Montanana said.
By the close of trade on Tuesday, Datatec’s share price had fallen the most in 12 weeks, down 3.28% to R38.89, giving it a market valuation of R8.43bn.
The group said the supply chain delays has slowed the sales process. The company reported a backlog of about $1.224bn (R19.2bn) compared with $467m previously.
Despite this state of affairs, the group bumped up its dividend 11% to R1.11, saying it expects to continue to benefit from robust global demand for services such as networking, security and cloud infrastructure.
Group revenue rose 12.8% to $4.64bn, about 8% above prepandemic levels, with gross profit up 11.6% to $770m.
Datatec, whose operations span more than 50 countries, has two main divisions: managed services provider Logicalis and Westcon International (WI), which distributes security and networking technology products.
Having once traded at R137 at the turn of the century and almost R77 in 2015, Datatec has lost a lot of its value 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.
As a way to deal with its valuation gap, Montanana has assembled a team from Lazard, known as the world’s largest independent investment bank, to try to find ways to unlock value. The company said it is considering all options, but a few on the table include separately listing Logicalis and WI or selling to a larger group, as Adapt IT did when it was taken over by Canada’s Volaris.
In line with that plan, Datatec said it has entered into a potential sale of its management consulting business, Analysys Mason, which contributed about 2% of group revenue in 2022, and about 7% of core profit.
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