Datatec - The positives outweigh the negatives

Datatec’s H123 results suggest continuing revenue momentum in H123 driven by enterprise demand for cybersecurity, networking and cloud infrastructure, although with a mixed picture across the group. Excluding Analysys Mason, group revenues rose 9% y-o-y to US$2.41bn, while gross profits fell 5% to US$338m and adjusted EBITDA rose by 16% to US$88m. Underlying EPS fell by 67% to 2.2 US cents (3.6 US cents including Analysys Mason), particularly impacted by share-based payment charges. Net debt (for continuing operations) dropped 17% from FY22 to US$111m, reflecting effective working capital management and strong cash flow generation. Although the backlog continued to grow across each division, there are signs that this may be close to peaking as the rate of growth slows, supporting our view that the backlog will start to unwind in H223, through FY24. The global macroeconomic outlook remains uncertain, especially in Europe, but group profit margins would benefit if supply chain issues were to start to ease and the backlog reduced. There are also signs of an improving environment for Logicalis LatAm in H223. The £135.1m special dividend from the sale of Analysys Mason is due to be paid on 5 December 2022.