Jens Montanana, CEO of Datatec – South Africa’s largest listed IT firm – mentioned there are nonetheless alternatives to unlock vital worth for the group’s shareholders, even after returning billions of rand to traders within the type of dividends over the previous three years.
Chatting with TechCentral forward of the publication of Datatec’s interim outcomes for the six months ended 30 August 2024 on Thursday, Montanana mentioned the group has been “wildly undervalued” for the previous 15 years, and administration stays targeted on methods of unlocking the worth it believes, for numerous causes, has turn out to be trapped.
And Montanana, 63, is placing his cash the place his mouth is: he’s upped his private stake in Datatec – which was listed on the JSE 30 years in the past this week – to about 17% (from 13.5% three years in the past), for a paper wealth of roughly R1.5-billion within the firm’s shares.
Datatec on Thursday reported a robust monetary efficiency in its newest six-month interval, regardless of a small decline in income, with each of its principal subsidiaries, IT/networking distributor Westcon and IT companies enterprise Logicalis, handing over good revenue development and margin enlargement, with headline earnings per share rising by 66.7% in dollar-reporting phrases.
The group declared an interim dividend of 75c/share and the share worth rose 3.5% in intraday buying and selling on Thursday on the again of the numbers. Nevertheless, the shares are nonetheless buying and selling at a deep low cost to the valuations connected to related companies internationally, Montanana mentioned.
The most important company motion aimed toward unlocking shareholder worth in recent times got here in 2022 when the group offered its controlling 70% stake in Analysys Mason for about £140-million in money to personal fairness agency Bridgeton Improvement Capital. The proceeds of the sale had been returned to Datatec shareholders within the type of a particular dividend.
“We offered it for 33% of our market cap [at the time] – it was 7% of our income for a 3rd of our market cap,” Montanana mentioned.
Westcon and Logicalis
What’s left are two massive companies: the Westcon IT/networking distribution entity and Logicalis, a world IT companies agency. Though 98% of Datatec’s income and 99% of its income are generated exterior South Africa, it stays listed right here for one necessary motive: most of its shareholders are South African, Montanana mentioned. Although an inventory within the US – maybe on the tech-heavy Nasdaq – would possibly result in a greater score on the shares, Montanana mentioned the corporate would battle to get seen in a market of that measurement. “We’d be invisible,” he mentioned.
So, to unlock additional worth for shareholders, Montanana and his administration staff are contemplating different choices, although nothing is being actively mentioned. One choice is perhaps some form of company motion, together with a merger with a big international participant or the outright sale of one other subsidiary, à la the Analysys Mason deal. A list elsewhere is unlikely given the compliance necessities and prices.
Learn: Datatec to promote Analysys Mason for as a lot as R4.1-billion
Even with out company motion, the underlying companies are performing properly, Montanana mentioned. Westcon, which just lately efficiently applied the SAP enterprise software program system (after some main teething issues), has seen an enormous soar in operational profitability, lifted by a shift from {hardware} gross sales to software program and companies. Cybersecurity options have been a stellar performer for Westcon, and now makes up 45% of gross sales – above networking, which has slipped to 38%. This has supplied an excellent uplift to revenue margins.
One downside space has been Latin America, the place Logicalis has come beneath extreme strain, partly as a result of enterprise from telecommunications operators – a key shopper phase – dried up when the Covid pandemic hit. It was additionally too reliant on a small variety of massive purchasers. A earlier plan to listing Logicalis in Latin America – once more aimed toward unlocking worth for shareholders – has been scrapped, for now.
One motive for Datatec’s depressed share worth, Montanana mentioned, is a operate of the South African market, which international traders have averted just like the plague. Additionally, Datatec shares are tightly held, with solely a handful of huge shareholders, together with the Authorities Workers Pension Fund, M&G Group, Sanlam, Outdated Mutual and Ninety One.
“We have now a handful of shareholders who’re all near me of their proportion holdings and have been there a very long time. However ‘tightly held’ equals ‘low liquidity’. For consumers, you want sellers… You want rotation amongst massive shareholders to smaller shareholders. This downside isn’t distinctive to us.
“Our focus stays closing the valuation hole and specializing in company actions – whether or not it’s dividends or disposals. We’re alert to all [options],” he mentioned.
Simply how massive is the valuation hole? “It vital, which is why I maintain accumulating [shares],” Montanana mentioned. – © 2024 NewsCentral Media
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