Sleeping giant Didata is back in favour

Increasingly strong results from Dimension Data have put it firmly back on the international investment radar, drawing dozens of foreign analysts and journalists to a briefing in Johannesburg this week.

Delegates from renowned research houses Gartner, IDC and DataMonitor attended, along with Investec analysts from London and its local backers, Sanlam, Coronation and Allan Gray.

"We have spent a lot of time as a management team rebuilding credibility and we are winning confidence that we can be taken seriously," said CEO Brett Dawson. "Three years ago we battled to get any time with the analysts. Today we are battling to satisfy industry demand."

In its heyday, Didata shares changed hands at R75, before scraping a desperate low of R2. This week they are bubbling at about R7,35, less than a tenth of their zenith.

Didata benchmarks itself against 16 peers, and for the past 18 months it ranks second in terms of total returns for shareholders, beating the global giants Cisco, 3Com and HP. Top honours go to its local rival, Datatec, however, with an impressive 43% return compared with Didata’s 28,6%.

Some of the interest has been piqued by recurring speculation that Didata may be a takeover target. Its market cap of R11,3bn makes it relatively inexpensive for a foreign buyer coveting its global footprint and skills.

"They are definitely attracting interest because the earnings and financial performance are improving. A couple of fund managers have done very well with Didata over the past two years when you look at the share price," said local analyst Ernest Kaplan.

"The new management team is definitely instilling confidence in the market. They just want to get the job done and the market really appreciates that, given that a lot of investors have been hurt by Didata’s promises in the past," he said.

Kaplan said it had been useful to meet Didata’s networking experts to hear about technology development s that would fuel its growth and make its business buoyant for the next few years.

Dawson said Didata’s recovery was not a one-day game.

"We are starting to see a lot of positive signs like great market share growth. But there are still lots of areas to improve, and we mustn’t become arrogant and complacent."

The group still had to hone its business processes and systems to be more efficient, improve its customer service and invest more in its people.

Didata grew its revenue 22% to $1,77bn for the six months to March 31 – a feat not likely to be repeated in the second half. "We are cautious about the growth rates," Dawson said. "We think the market should anticipate more traditional rates of 17%."

Its first-half operating margin inched up from 2,5% to 3,1%, leaving an attributable profit of $32,6m. "We want to get our margins to 5% in the next three to five years and we are focused on that goal right now," Dawson said.

Acquisitions are not high on the agenda. Didata has a direct presence in about 40 countries and operates in another 75 or so through local partners. "The main point of our growth now is being deeper and broader in our existing geographies," Dawson said.

One goal is to become the world?s leading specialist in internet protocol (IP) telephony, which uses data networks to carry voice calls, eliminating the need for separate voice lines. That is not an unrealistic aim. Equipment from Cisco Systems dominates the IP arena, and Didata is Cisco’s largest technology distributor.

Didata’s IP telephony revenue grew 64% in the last half-year, and Africa is a potentially huge market as emerging countries leapfrog traditional technologies.

In SA, its Internet Solutions subsidiary hopes to benefit from market liberalisation by winning a licence to set up its own networks instead of being forced to lease its lines from Telkom.

In her budget speech last month, Communications Minister Ivy Matsepe-Casaburri said she had told the Independent Communications Authority of SA (Icasa) to urgently consider whether some existing data operators can be granted licences for their own facilities.

"That would change the nature of our Internet Solutions business quite dramatically," said Didata’s CEO in Africa, Allan Cawood.

In SA alone, R70bn was spent on voice calls every year, and winning just 5% of that would have a major impact. Didata would also invest up to $10m in a new undersea cable being laid around Africa’s east coast to give it cheaper international bandwidth, Cawood said.

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Sleeping giant Didata is back in favour