Datatec more than doubles interim dividend after a 109.5% surge in headline earnings

Datatec, the global provider of ICT solutions and services, has reported a striking 109.5% increase in headline earnings per share for the six months to August 31 after enhancing profit in its Westcon division and evolving its recurring software and services portfolio.

This culminated in an interim dividend that more than doubled to 10 US cents from 4 US cents at the same time last year. Datatec's share price let off some steam falling by 0.93% to R40.36 Thursday afternoon, but the price is more than 70% higher than a year ago.

More than 70% of sales now originate from software and services. Although gross invoiced income remained flat at $260.9 million, the Westcon International division experienced a boost, with invoiced income climbing 9.8% to $2.7 billion. This expansion was evident across all operational regions, while gross profit soared by 13.8% to $245.m, benefitting from tax credits and enhanced margins, particularly in the Asia-Pacific market.

CEO Jens Montanana expressed confidence in the company’s trajectory, stating: “The strong profit improvement and an enhanced dividend payout ratio led to a significant increase in our interim dividend. I am pleased to report another period of outstanding operational execution and financial performance and a further improvement in the quality of Datatec’s earnings.”

The trading landscape is being reshaped by an increasing share of software and services, characterised by rising margins and the burgeoning complexity of IT systems, which is boosting demand for Datatec's specialised offerings.

“AI-ready IT and network infrastructure will become essential for most businesses,” explained Montanana, noting a shift towards faster networking, distributed data centres, and heightened cyber threats, all leading to a positive outlook for the group in the forthcoming full-year financial performance.

Performance across different divisions underscored the firm's operational efficiency. The Logicalis International division demonstrated compelling operating leverage, and Logicalis Latin America reported a substantial financial uplift. These gains were complemented by a decrease in net finance costs due to effective working capital management and favourable interest rates.

Factors driving the demand for the group's services include AI, which is driving significant changes in data centre and network infrastructure, increasing the demand for cyber security solutions. In addition, businesses are modernising their IT to adapt to hybrid-cloud environments, pushing management services and new generation product sales.

Vendors are increasingly teaming up with experienced channel partners like Datatec’s subsidiaries to tackle complex challenges and foster digital integration.

“All regions reported strong year-over-year growth.” Gross profit across the group increased by 11.3% to $182.5m, yielding a gross margin boost to 29.8%, reflective of a notable surge in annuity income, which now accounts for 62% of total earnings. These operating efficiencies resulted in a robust increase in adjusted earnings before interest tax depreciation and amortisation (EBITDA) climbing 36.5% to $52.4m.

The promising performance of Logicalis Latin America is attributed to tight expense management and an ongoing expansion in gross margins, with gross invoiced income stabilising at $260.9m and gross profit rising by 6.2% to $51.3m, culminating in a gross margin of 22.9%. This success can largely be credited to the recovery in Brazil and improved product margins across the region.

BUSINESS REPORT