While Datatec has benefited significantly from its expansion into emerging markets, the effects of the global recession have had a considerable impact on the group's earnings over the first half of the current financial year, says Frost & Sullivan.
Datatec released interim results today, revealing a 21% decline in revenue from the comparable period last year. Operating profit before finance costs, depreciation and amortisation (EBITDA) fell 38% and headline earnings per share were 72% lower at 4.9 US cents per share. The group's balance sheet however remained strong, with $318-million held in cash.
"The global economic slowdown has led to reductions and delays in IT spending which has impacted on Datatec's performance," says Frost & Sullivan ICT industry analyst Spiwe Chireka. "This has been particularly felt in the Logicalis business due to its focus on North America and Europe."
EBITDA for Logicals fell 47% from the first half of 2008. It was down to $16,5 million from $31,4 million.
The group however noted that the challenging trading conditions experienced over the past 18 months are starting to stabilise. It therefore expects its performance to improve over the second half of the financial year.
Chireka concurs with this assessment that the worst may be over for the ICT industry.
"Businesses have somewhat adjusted to the current crisis and we can expect companies such as Datatec to be near if not over their operating targets in the second half of the year," she said. "The group's increased focus on services and consultancy is a key strategy in this regard."
Datatec's broad geographical spread, which it continues to grow, will also be a strong competitive advantage for the group. As it has created diverse revenue streams it has reduced its dependency on any single market or technology sector.
"The group's expansion into the Asia Pacific (APAC) region through the acquisition of New Zealand company Datastor this month is another example of this," Chireka says. "A strong presence in APAC could be highly profitable in the short term, as Frost & Sullivan believes the region has positioned itself as the hub of IT outsourcing. Companies like Datatec with a strong presence are likely to reap rewards."
Chireka adds that the group's intention to move into China could be another major source of growth.
"The risk of moving into this market is sizeable due to the relatively high barriers to entry," she says. "However, no one can deny the potential it offers due to the huge addressable market in that country. As far as I know, Datatec would be the first among its key South African competitors to enter this market, so all eyes will be on the group to see how it fares."