Datatec Limited (JSE:DTC)
Datatec Limited provides ICT solutions and services worldwide. Following the sale of the Westcon Americas businesses to SYNNEX in September 2017, Datatec operates two main divisions: Technology distribution - Westcon International: distribution of security, collaboration, networking and data centre products and solutions; and Integration and managed services - Logicalis: ICT infrastructure solutions and services. Stock is super cheap (16% FCF yield or 0.5x P/B) amid Corona virus pandemic but in the long run, company owns a cash flow machine (Logicalis) and operation that could be sold at a price higher than the total market cap. We think at least 3x upside is possible from the current price! Asset sales & special divided payout could be big catalysts.
Why is the stock super interesting?
• Company has a history of selling assets that make more synergistic sense to other larger buyers; For instance company has sold Westcon Amererica (NA division of Westcon) at US$630M and company paid out US$350M as special dividend and used rest for roll up acquisitions and massive buyback.
• SOTP value implies 3x upside!!: Adding US$270M+US$520M and taking out US$60M of min int equals US$730M and dividing by # of shares of 200mn equals US$3.7/share or ZAR60 / share. This translates to 3x upside. Note that company never traded
· Westcon value: Synnex or other buyer can buy the rest: Back in 2017, company sold 10% of Westcon International (in addition to selling 100% of Westcon Americas) at the value of US$30M. Synnex could buy what’s left of Westcon from Datatec – synnex already owns 10% of Westcon International. Once Synnex experiences synergies created by acquiring Westcon Americas, the organization might naturally desire to purchase the rest of it. Since Synnex paid $30 mn for 10% stake in Westcon International, selling the rest of Westcon International to Synnex (or any other party) would generate roughly $270mn of additional cash for Datatec. Now, this was before the company engaged in big turnaround of Westcon, which means that valuation might be much higher now. What we know is that Westcon Amercas actually had similar revenue level with Westcon international so the latter may be priced at much higher level vs. $270M.
· Logicalis is a cash printing machine and generates EBITDA of 93M annually. Given that peers are trading at 7x EV/EBITDA, even with 20% discount, the EV of Logicalis should be trading at US$520M or this is around 10x P/E.
· Company's cash roughly matches dividends but company has ZAR1B (or US$60M) minority interest.
• Strong management:
· CEO: Multiple records of value add & sale of assets: Mr. Jens Peter Montanana founded Datatec Limited, the parent company of Westcon Group Inc., in February 1986 and has been its CEO since February 1986. Mr. Montanana served as CEO of Logicalis Group Limited from October 2002 to March 1, 2007. From 1989 to 1993, Mr. Montanana served as the Managing Director and Vice-President of US Robotics (UK) operations, a wholly owned subsidiary of US Robotics, now 3Com. In 1993, he co-founded US start up Xedia Corp. in Boston, MA, which was subsequently sold to Lucent Corp. He has been an Executive Chairman at Westcon Group, Inc. since September 18, 2017.
· CFO (Good pedigree): Mr. Ivan Philip Dittrich, BComm, CTA, CA (SA), has been the Chief Financial Officer of Westcon Group, Inc. since September 2017. Mr. Dittrich has been the Chief Financial Officer of Datatec Limited since May 30, 2016. He served as the Chief Financial Officer of Vodacom Group Limited from June 15, 2012 to July 31, 2015. Mr. Dittrich served as the Chief Financial Officer at Datatec Limited from May 1, 2008 to May, 2012. He served as a Company Secretary of Datatec until January 1, 2007 and also served as its Corporate Finance Manager and Group Corporate Director. He successfully managed the Datatec's dual listing in London during 2006. Graduate degree from Oxford.
• Catalysts:
Immediate catalyst could include Latin American listing for Logicalis Datatec is exploring the possibility of listing the Latin American arm of its Logicalis subsidiary on the Brazilian stock exchange, B3. The Latin American business is held 65% by Logicalis and 35% by Promon, with Logicalis expected to remain the majority shareholder if the listing goes ahead.
Source: <https://techcentral.co.za/datatec-eyes-latin-american-listing-for-logicalis/96264/>
Datatec Limited provides ICT solutions and services worldwide. Following the sale of the Westcon Americas businesses to SYNNEX in September 2017, Datatec operates two main divisions: Technology distribution - Westcon International: distribution of security, collaboration, networking and data centre products and solutions; and Integration and managed services - Logicalis: ICT infrastructure solutions and services. Stock is super cheap (16% FCF yield or 0.5x P/B) amid Corona virus pandemic but in the long run, company owns a cash flow machine (Logicalis) and operation that could be sold at a price higher than the total market cap. We think at least 3x upside is possible from the current price! Asset sales & special divided payout could be big catalysts.
Why is the stock super interesting?
• Company has a history of selling assets that make more synergistic sense to other larger buyers; For instance company has sold Westcon Amererica (NA division of Westcon) at US$630M and company paid out US$350M as special dividend and used rest for roll up acquisitions and massive buyback.
• SOTP value implies 3x upside!!: Adding US$270M+US$520M and taking out US$60M of min int equals US$730M and dividing by # of shares of 200mn equals US$3.7/share or ZAR60 / share. This translates to 3x upside. Note that company never traded
· Westcon value: Synnex or other buyer can buy the rest: Back in 2017, company sold 10% of Westcon International (in addition to selling 100% of Westcon Americas) at the value of US$30M. Synnex could buy what’s left of Westcon from Datatec – synnex already owns 10% of Westcon International. Once Synnex experiences synergies created by acquiring Westcon Americas, the organization might naturally desire to purchase the rest of it. Since Synnex paid $30 mn for 10% stake in Westcon International, selling the rest of Westcon International to Synnex (or any other party) would generate roughly $270mn of additional cash for Datatec. Now, this was before the company engaged in big turnaround of Westcon, which means that valuation might be much higher now. What we know is that Westcon Amercas actually had similar revenue level with Westcon international so the latter may be priced at much higher level vs. $270M.
· Logicalis is a cash printing machine and generates EBITDA of 93M annually. Given that peers are trading at 7x EV/EBITDA, even with 20% discount, the EV of Logicalis should be trading at US$520M or this is around 10x P/E.
· Company's cash roughly matches dividends but company has ZAR1B (or US$60M) minority interest.
• Strong management:
· CEO: Multiple records of value add & sale of assets: Mr. Jens Peter Montanana founded Datatec Limited, the parent company of Westcon Group Inc., in February 1986 and has been its CEO since February 1986. Mr. Montanana served as CEO of Logicalis Group Limited from October 2002 to March 1, 2007. From 1989 to 1993, Mr. Montanana served as the Managing Director and Vice-President of US Robotics (UK) operations, a wholly owned subsidiary of US Robotics, now 3Com. In 1993, he co-founded US start up Xedia Corp. in Boston, MA, which was subsequently sold to Lucent Corp. He has been an Executive Chairman at Westcon Group, Inc. since September 18, 2017.
· CFO (Good pedigree): Mr. Ivan Philip Dittrich, BComm, CTA, CA (SA), has been the Chief Financial Officer of Westcon Group, Inc. since September 2017. Mr. Dittrich has been the Chief Financial Officer of Datatec Limited since May 30, 2016. He served as the Chief Financial Officer of Vodacom Group Limited from June 15, 2012 to July 31, 2015. Mr. Dittrich served as the Chief Financial Officer at Datatec Limited from May 1, 2008 to May, 2012. He served as a Company Secretary of Datatec until January 1, 2007 and also served as its Corporate Finance Manager and Group Corporate Director. He successfully managed the Datatec's dual listing in London during 2006. Graduate degree from Oxford.
• Catalysts:
Immediate catalyst could include Latin American listing for Logicalis Datatec is exploring the possibility of listing the Latin American arm of its Logicalis subsidiary on the Brazilian stock exchange, B3. The Latin American business is held 65% by Logicalis and 35% by Promon, with Logicalis expected to remain the majority shareholder if the listing goes ahead.
Source: <https://techcentral.co.za/datatec-eyes-latin-american-listing-for-logicalis/96264/>
DURBAN - Datatec's share price leapt by more than 45percent on the JSE on Friday after the information and communications technology (ICT) group said it expected all its divisions to report a surge in profits for the year to the end of February.
The group said in a trading update that it was in the process of finalising its results for the year to the end of February, and it had achieved a solid financial performance in all of its divisions.
“The turnaround in Westcon International continued with a substantial improvement in profitability in the financial year to end February 2019. Logicalis is also expected to produce a strong result, especially in its Latin America region. Analysys Mason had another growth year, with much improved profitability,” the group said.
The share price responded positively to the trading update and surged to R26.80 a share, up from Thursday’s closing price of R18.25. It closed at R26 on Friday.
Last year, Westcon International benefited from the turnaround strategy as it reported earnings before interest, tax, depreciation and amortisation (Ebitda) of $5.6 million (R98.40m), recovering from a loss of $48.1m a year earlier, while Logicalis increased its Ebitda by 8.4percent to $93.4m.
The group said its balance sheet remained strong and was expected to report a reduction in net debt at the end of February compared to its net debt reported in the half-year results at the end of August. The group reported a net debt of $193.7m at the end of August.
The group also expected a solid performance in the next 12 months.
“For the first few weeks of financial year 2021 to date, order intake for Westcon has been ahead of this time last year, while in Logicalis order intake for March is expected to be ahead of March last year. So far we have experienced limited supply chain interruptions. We are seeing increased demand for our remote access computing, security and collaboration networking solutions,” the group said.
Datatec has warned about the Covid-19 outbreak, which has impacted its operations. “The Covid-19 virus outbreak has very rapidly spread across the globe in recent weeks and into every region where Datatec operates. We are continuing to take appropriate action to ensure the safety of all our employees and customers, in addition to following the World Health Organisation and local country and government guidelines,” it said.
The group has closed a number of offices and it has encouraged most of its employees to work remotely where possible.
“Across the group, employees are equipped with the necessary technological tools to work effectively from home. Our warehouses are still functioning with new protocols for care and safety of our people,” the group said.