Datatec shares soar after news of Westcon sale

Shares in Datatec soared on Friday after the global technology firm told the market it would sell a majority stake in its Westcon-Comstor subsidiary for more than $800m.

At the same time, Datatec warned that its underlying earnings for the year to end February would be more than 50% below the $0.32 per share recorded in the 2015 financial year because of a poor performance at Westcon-Comstor.

The update to the market sent Datatec shares 7% higher, to close at R57.
Commenting on the trading statement, Datatec CEO Jens Montanana blamed the expected decline in earnings on a "worse-than-expected result" at Westcon-Comstor.
The trading update said there was a decline in financial performance in the Europe, Middle East and Africa region in the fourth quarter. Westcon-Comstor "experienced disruption to the business as a result of the final stages of SAP implementation" in the region.

 

Chief investment officer at Falcon Crest Asset Managers Farai Mapfinya said Datatec’s full-year guidance was "quite poor and substantially weaker than we expected".
"Our base case underlying HEPS [headline earnings per share] was for a decline of around 30%, but we think the performance of Westcon deteriorated materially and accounts for the bulk of the underperformance."

He said the performance of the Europe, Middle East and Africa region would have taken a huge hit as a result of the significant strengthening of the US dollar, which affected that segment both operationally and for reporting purposes.
But the share price has responded positively, possibly on the back of the proposed disposal of Westcon-Comstor.
"It’s a case of the prospects of selling an underperforming … business at a good price. Should they manage to sell the asset for the indicated price, it will be good for Datatec," said Mapfinya.

Montanana said Westcon-Comstor had adjusted its operating model, and Datatec expected a rapid recovery. He warned that the proposed transaction was subject to contract and exclusivity provisions.

Westcon is a distributor of technology products such as security and data centre solutions. It operates in more than 60 countries.

 

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