Datatec - Starting to unlock underlying value

Datatec is a global IT services and solutions provider, operating in over 50 countries through three divisions, Logicalis (IT services), Westcon International (technology distribution) and Analysys Mason (consultancy). Following a group reorganisation, all three divisions are now profitable and cash-generative, delivering a robust H121 on a constant currency basis, with Logicalis affected by currency weakness, offset by a strong performance from Westcon. Benefiting from technology trends (security, networking, cloud, unified communications), management expects revenue growth of 4–6% in the medium term driven by investment in software and services. Datatec trades at a substantial discount to its peers at an FY21e EV/EBITDA of 2.5x and P/E of 13.3x. In our opinion, this valuation reflects neither Datatec’s recent transformation nor its future growth prospects.