London, UK, 3 November 2020

Datatec (DTCJ): Transformation and growth potential not reflected in valuation

After its reorganisation, all three of Datatec's divisions are now profitable and cash generative. In the recent H121 results Logicalis was affected by currency weakness, although this was offset by a strong performance from Westcon. However, Datatec is still trading at a substantial discount to its peers, with an FY21e EV/EBITDA of c 2.5x and P/E of c 13.3x.

In our opinion, this valuation is backward looking and does not reflect Datatec's recent transformation or its future growth prospects. A simple sum-of-the-parts analysis suggests Datatec's current EV is well below our EV for the Logicalis division alone (c US$600m), with Westcon and Analysys Mason effectively thrown in for free.

Datatec's management is focused on unlocking the group's underlying value. Given trends such as security, networking, cloud and unified communications, Datatec expects revenue growth of 4-6% in the medium term, driven by investment in software and services.

About Datatec: Datatec is a South Africa-listed multinational ICT business, serving clients globally, predominantly in the networking and telecoms sectors. The group operates through three main divisions: Westcon International (distribution); Logicalis (IT services); and Analysys Mason (consulting).

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