Datatec is in the right industry at the right time
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Datatec’s share price ramped up at the end of 2021 as the group announced a strategic review process. After paying a substantial special dividend, the group has kept the market waiting for news on what that strategic review will lead to.
With results for the year ended February 2022 now released, Datatec has reminded the market that it has a solid core business. With all numbers reported in US dollars except the dividend, revenue is up 12.8% and adjusted EBITDA (excluding share-based payments and restructuring costs) is up 16%. EBITDA without the adjustments is up over 30%. Headline earnings per share (HEPS) is up a ridiculous 800%, coming in at 16.2 US cents. The dividend is 11% higher at R1.11 per share.
The underpin to all this is strong demand for networking, cyber security and cloud infrastructure. The recurring income streams in the group have grown and so has the backlog for hardware, a direct result of supply chain pressures globally. Open product orders at the end of the year were around $1.2 billion vs. $467 million the prior year, so there’s a substantial jump here.
It doesn’t seem as though the backlog has driven pricing power though, with gross margin actually decreasing by 20bps to 16.6%.
Moving to segmentals, there was growth across the board. Logicalis is the largest division and offers services like infrastructure, hybrid cloud and related advisory services, growing revenue by 14.2% and EBITDA by 12.9%. Westcon International experienced strong demand in network infrastructure and cybersecurity, with revenue up 11.8% and EBITDA surging 52%. Management consulting business Analysys Mason increased revenue by 23.5% and EBITDA by 8.8%.
The group has left the door open for further announcements related to the strategic review, whilst also confirming that the small Analysys Mason business has been recognised as held for sale. The management consulting business isn’t a natural fit with the rest of the group, so this makes sense to me.
The balance sheet has come under pressure, a trend I’ve seen across the market currently. Excluding lease liabilities, net debt is $35.7 million vs. a net cash position of $53.4 million a year ago. In order to hang on to cash, there will be a scrip alternative to the latest dividend i.e. the ability for shareholders to elect to reinvest the dividend rather than receive cash.
One thing is clear: the supply chain backlog in tech hardware is far from over. For companies like Datatec, this means ongoing demand for products and related services.
