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Datatec in radical restructure

As it sells off a chunk of the business.

International ICT company Datatec is in talks to sell a major share of subsidiary Westcon’s operations for more than US$800 million.

Datatec, which is listed on the JSE with a secondary listing on London’s AIM, operates across three core divisions, controlling technology distribution through Westcon Group, integration and managed services through Logicalis and consulting and research through Analysys Mason.

The Datatec share price rose 7.14% to R57 on the news. 

Datatec share chart

 

Westcon-Comstor (the go-to market brand) accounted for 75% of Datatec’s $6.5 billion revenue earned in the year to February 2016 and 52% of its $162.1 million Ebitda.

Logicalis, which was boosted by no less than three strategic acquisitions in the 2016 year, accounted for 24% of revenue and 47% of Ebitda.

Reasons for the sale have not been divulged, but there is considerable consolidation taking place in the distribution world and it is no secret that Weston-Comstor has struggled financially recently.

In its last set of results, interim numbers for the six months ended August 31, 2016, Datatec’s revenues and Ebitda were both down year on year.

At the time CEO Jens Montanana warned that emerging markets were showing signs of a slow recovery and the move to transform the business processes at Westcon would take until June this year.

In its latest trading update the company has advised that underlying earnings per share for the year ended February 2017 is expected to be more than 50% lower (or at least 16 US cents per share lower) than the prior year (FY16: 32 US cents).

Headline earnings per share and earnings per share are also expected to be more than 50% lower (or at least 10 US cents lower) than the prior year (FY16: 19.4 US cents and 19.3 US cents respectively).

These are worse than expected results, with the company guiding in October that the second half of the year would see an improvement in underlying earnings per share. 

The year over year expected decline in earnings is as a result of a worse than expected result in Westcon-Comstor. There was a decline in fourth quarter financial performance in the Europe Middle East and Africa (EMEA) region. Westcon-Comstor experienced disruption to the business as a result of final stages of SAP implementation in EMEA.

The company has made adjustments to the operating model and Datatec expects this to support a rapid recovery.

Logicalis was trading in line with management’s expectations.

Datatec spent $160 million in June 1998 to purchase a 92.5% stake in US distributor Westcon. This allowed the consolidation of Datatec’s distribution businesses on five continents under the Westcon brand and transitioned the company from a regional player into a truly international operation.

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