ICT group Datatec expects to report a drop in earnings of up to a third for its six months to August, owing to a strained global economy struggling with the effects of inflation, supply chain issues and a continuing European war.
Despite the downturn in the results, the group has declared a special dividend after selling one of its units, which sent the company’s share up on Tuesday.
Having evolved for 35 years, Datatec — which has operations spanning more than 50 countries — has two main divisions: Logicalis and Westcon International, which distributes security and networking technology products. Valued at R9.78bn, Datatec is one of the JSE’s largest information and communications technology (ICT) services firms.
The group expects to report headline earnings per share — which strip out the effect of one-off financial events — of $0.04-$0.05, compared with 6.3c in the previous matching period. This translates to a drop of 20.6%-36.5%.
In morning trade, the stock was 3.85% firmer at R44.50. This is likely to have been driven by the declaration of a special dividend of R12.50 per share or £135m (R2.697bn) in total, following the recent sale of Datatec’s consulting unit.
“Headwinds resulting from semiconductor shortages, compounded by various factors, including the war in Ukraine, Covid-19 lockdowns in China and global inflationary pressures, will continue to disrupt global supply chains for the foreseeable future,” the group said in a note to investors on Tuesday.
It said Latin America, in particular, is expected to be affected during the period “as macroeconomic challenges across much of the region added to the severe supply chain constraints. In addition, the material strengthening of the dollar affected all divisions.”
Globally, the industry is facing a slowdown in ICT spending after Russia’s invasion of Ukraine knocked confidence, meaning the likes of Datatec have found it difficult to fulfil some orders due to continued pressure on global supply chains. This is unlike companies such as Bytes Technology or Adapt IT — whose main business is software — which can continue to deliver products and services to corporate clients, for the most part unhindered.
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, CEO Jens 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.
As part of this mission, the group signed a deal in June to sell 100% of its managing consulting subsidiary, Analysys Mason, for £210m (just under R4.2bn) to UK fund manager Bridgepoint Development Capital.
By the market close Datatec’s share price had reversed course, with the stock closing 2.89% lower at R41.61. It has gained 8% so far this year.
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