Datatec is cheap but has risks
JSE-listed international ICT services company Datatec is an excellent business that has performed exceptionally well in recent years. Despite a recent surge in price, its share remains relatively cheap.
However, Rand Swiss founder Gary Booysen says investors should consider several risks before buying the stock.
These include Datatec’s somewhat tightly held shares and traditional information and communication technology (ICT) business models facing disruption.
Datatec’s share price has increased by 15% over the past ten years and 200% over the last five-year period on the back of its excellent performance.
It published a trading statement on 7 October to notify shareholders that it expects its earnings and headline earnings per share for the first half of its 2026 financial year to soar.
“All divisions have delivered very strong financial performances in H1 FY26 with significantly improved results compared to H1 FY25,” Datatec stated.
“Westcon maintained its expanding margin and continuing strong profit growth trajectory. Logicalis International’s improved operational leverage drove much higher profitability.”
Westcon and Logicalis International are two of Datatec’s operating divisions. Westcon is a technology distributor, and Logicalis is an ICT service provider.
Logicalis Latin America, a separate division to Logicalis International, delivered a considerably improved performance compared to H1 FY25.
As a result, for the six months ending 31 August 2025, Datatec expects to report an 85.8% and 103.5% increase in earnings per share from 11.3 US cents to $0.21–$0.23.
Similarly, Datatec expects its headline earnings per share to climb by over 100% from 10.5 US cents to $0.21–$0.23.
Its underlying earnings per share, which Datatec uses to determine its dividend, will be $0.18–$0.20, a 33.3% to 48.1% increase compared to the 13.5 US cents reported for the same period last year.
Underlying earnings per share exclude several items, such as impairment of goodwill and intangible assets, profit or loss on sale of investments and assets, and amortisation of acquired intangible assets.
It excludes acquisition-related adjustments, fair value movements on acquisition-related financial instruments, fundamental restructuring costs, and share-based payment charges.
Other items excluded are one-off tax items impacting EBITDA, acquisition, integration, and corporate action costs, as well as taxation and non-controlling interest effects.
Since July 2021, Datatec has maintained an average dividend yield of 4.7%. Its dividend yield has also seen an increasing trend since 2021.
Solid dividends, but uncertainty around traditional ICT business models
Booysen said Datatec is often sidelined because of how tightly it is held. CEO Jens Montanana holds over 18% of the company, and government owns 16.74% through the Public Investment Corporation.
“One of the other asset managers is also sitting at about 15%,” said Booysen.
“So, it’s an interesting one. It’s well diversified. It operates across fifty countries with 11,000 customers and is not particularly expensive at 15 times earnings either.”
Booysen also highlighted Datatec’s dividend as an attractive feature for shareholders. He said the earnings per share performance announced in the recent trading statement suggests a higher dividend too.
“My issue around it is… ICT is a very complex business to invest in. Through Westcon, they look at security, network, and technology products, which is essentially reseller partnerships,” he said.
“They also do implementation agreements for people like Cisco and Palo Alto. While these are best-in-class solutions, the ICT landscape is changing very quickly at the moment.”
Booysen said there was a drive into AI, which could disrupt the business models of mature ICT companies like Datatec.
“Sure, they’ve been around since 1986. However, traditional business models might not work the same way in the next 5 years as they did for the last 5 years,” he said.
“With the disruption that’s happening in ICT and specifically around the reseller models, there’s potentially an outsized risk.”
Booysen said that could explain why Datatec is trading at a price-to-earnings ratio of 15 when it appears to offer excellent value.
“That said, hats off to management. The business is performing exceptionally well. It’s well diversified. It’s got US dollar earnings. There’s a lot to like about it.”
Schalk Louw from PSG Wealth Old Oak agreed. He said that Datatec’s excellent financial results and share price performance was nice to see and that it was definitely something he would be following.
Datatec share price
Datatec dividend yield
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